Saturday, February 20, 2010

Recordkeeping and Receipts for Items Paid by Check


I've been reading your book Self-employed Tax Solutions and I get your email. Thank you for what you do.

I'm wondering if the growth of online banking movement has changed your thoughts about having a checking account that returns your cancelled checks to you. I pay some of my bills directly out of my account and don't even write checks. I don't have any cancelled checks from last year and should I change banks to find one that will send me my checks back for this year? I'm thinking the IRS might have adjusted in the past 5 years. What is the current thinking on this?

I am a psychotherapist in private practice. Not a lot of transactions in a month, maybe 25 outflows at the most and about 3,000.00 inflow per month.


Dear Kim,

You are welcome. And, thank you for letting me know you appreciate the output. Indies do need as much clear, accurate info as they can get.

You must have proof of just about all business expense deductions. The most simple way is through cancelled check and credit card receipts. And if you follow my Most Simple System you must have backup for every dollar you spend.

Even though few banks return cancelled checks anymore most banks do provide photocopies of all checks written. You may cut them out, or copy and then cut them out. Treat them just as you would a cancelled check. A psychologist client in NJ urged her bank to provide a second, larger photocopy of her checks each moth. The bank wanted to keep her as a client so they obliged.

If your checking account is through your brokerage house you probably get a list not copies of checks. In that case I would suggest you use a local bank for your regular check writing.

If you pay bills directly you must still have something that tells you how much to pay. Print it out. For instance, if ATT emails your monthly bill print out the first page and note the date and from which account it was paid. That is your proof. And not only is it proof for taxes, it's proof if ATT says you didn't pay the bill.

Whenever possible get a paper invoice or bill for whatever you are paying by check. If you pay by check for an item purchased online, printout the purchase info. Note the check # and date paid on the printout. [BTW -- I suggest putting those kind of orders in a "waiting" bin. Pull them from the waiting bin when you actually receive the item. We are all so busy it's easy to forget about a one in the morning online purchase.]

Whenever you pay a bill by check, write the check number and the date paid on the invoice. For example, if you paid your cable bill on March 14 with check number 607, you would write √ #607 3/14/11 $234.56

File the receipts consecutively, by check number, in a folder labeled: 2011 CHECK BACKUP.

This and a complete method of manual recordkeeping is explained in my new petite publication, The Confident Indie: Five Easy Steps. It also includes worksheets for your 2010 tax return.


revised 1/30/11

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