Document Those Receipts

by Kenneth Hoffman in ,

If your only income is through salary, dividends, interest, etc. you probably will have few worries about the IRS asserting you have unreported income. But if you or your spouse have a business, you've got to be able to document amounts received that are not business income.

For example, your spouse has a consulting business. You're taking a trip to a Germany and agree to purchase six cuckoo clocks for a friend for a total of $4,000. You use your credit card and upon returning your friend reimburses you the $4,000. You're later audited and the IRS claims the $4,000 you deposited in your personal bank account was unreported income from your business.

The first question is will you even remember what the $4,000 was for? If you pass that test, can you prove it? There are many income sources that may be difficult to prove; some are easy. A loan from relatives for your business. The repayment of a loan you made to your neighbor to start a business. The proceeds of a yard sale. The sale of an inherited art work.

At a bare minimum make some sort of diary entry to describe the source of the income. Copy the check before depositing the money. Retain any documentation such as a note that substantiates a loan, a bill of sale for an item, etc.

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