Ways to Prove Tax Deductions If Your Records Are Lost

by Beverly Bird, studioD

The only thing worse than losing the documentation to verify your tax deductions is getting an audit notice from the Internal Revenue Service the next day. Although it may not seem possible, it's not the end of the world. The IRS might work with you to some extent, depending on how and why your records were lost, and you can recreate many of them by investing some money and effort.

Cash Expenditures

Replacing receipts for deductible cash purchases presents a challenge. Call vendors and suppliers you regularly do business with and request a copy of any of receipts they wrote to you. If an employee must invest significant time into the effort, the supplier might charge you a fee, but you'll replace the records. The IRS doesn't require receipts for restaurant and entertainment expenditures under $75, according to "The Network Journal." However, if you keep a date book or calendar that wasn't also lost or destroyed, you can use it to try to recall any instances in which you spent cash for such things, so you can deduct them.

Other Expenditures

Expenses you charged to a credit card, bank card or wrote a check for pose less of a problem. Banks will provide copies of all your canceled checks for a fee. Your bank statements will show debit card transactions, and credit card companies also replace lost statements. Compare your date book against these records to help you identify why you had to rent a car or why you charged $35 at a local florist. You can also match these statements against your suppliers' records to identify which transactions were not for cash and what they were for.

Your Income

The IRS keeps copies of all your tax returns, including 1099s and W-2s. Replace your lost ones by going to its website and downloading Form 4506, a request for copies. This will jog your memory about deductions you've made before, so you can track down documentation if you made them again in the current year. If you did work for anyone as an independent contractor, those entities will supply you with a Form 1099-MISC at the end of the year. For other sources of income, ask for copies of canceled checks from the people you worked for.

Home Office Deductions

Ask your mortgage holder to replace copies of your mortgage documents, showing what your payment is each month. If you rent, request a new copy of your lease from your landlord. Your utility companies can give you copies of all your old statements. Office supplies and purchases should appear on your bank or credit card records, but any you paid cash for will be difficult to replace. However, if you know what you usually spend each month for things like ink cartridges and envelopes, you can create an estimate of what you probably spent in addition to those you have bank or credit card transactions for.

Other Tips

Your situation is ultimately at the mercy of an IRS agent regarding any transactions or expenses you simply can't document, but agents have leeway to be forgiving. If your records were lost through no fault of your own, like in the event of a natural disaster, the IRS might not even charge penalties and interest if you have to file your return late while you replace your records. You'll improve your chances of leniency if you replace as much documentation as you can, and have a detailed explanation for the things you're missing. Call the IRS Taxpayer Advocate Service in your state, explain what happened, and ask for any advice as to how to proceed.

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