It's tax time and you're diligently filling out your income tax returns. But you have a big question: You run a freelance business out of your house. Because of this, you claim several deductions. These deductions can be a big help in reducing the amount of money that you owe to the government. But they also make completing your taxes more of a chore. You'll need to be organized, and you'll need perhaps an entire shoebox worth of receipts to prove to the Internal Revenue Service that your deductions are justified.
When You Need Receipts
If you don't claim any deductions, you won't need to gather and organize your receipts. However, if you run a business out of your home, you'll want to take several business-related deductions that can reduce the amount of money that you owe the federal and state governments. Finding these receipts is important: The government wants proof that you are taking legitimate deductions. Receipts showing exactly what you spent your money on is the best proof that you can provide.
Handling the Audit
Receipts are important if the IRS decides to audit your tax return. You'll need to provide them to the IRS to prove that the deductions you claimed really were business expenses, and not just personal expenses that you tried to pass of as legitimate deductions. The IRS is more likely to audit the returns of tax filers who run side businesses out of their homes or who are self-employed.
What Receipts You Should Save
There are certain receipts that you should save throughout the year. Receipts for business lunches, business-related travel expenses and office supplies are important to keep filed away in a secure place. You should also keep receipts for business attire that you purchase during the year. In short, any receipt that has anything to do with running your business is one that you should save. Keep these receipts in a safe place. If you want to make filing your returns especially easy, organize your receipts by type of business expense. Then, as tax day nears, you won't have to waste time searching for your receipts.
Sometimes a tax return becomes so complicated that it makes sense to rely on a public accountant or tax-filing service for help. This can become the case if your return includes a large amount of deductions. A tax accountant can help you determine which expenses are legitimate deductions and which are not. Just be careful not to hand your accountant a bag of unsorted receipts; this will increase the amount of time it takes your accountant to complete your return and make your bill rise accordingly.