With electronic payments becoming more common and check writing quickly disappearing, you might wonder how you can prove to the IRS that you actually qualify for a charitable (or some other) deduction that you plan to claim on your 2019 tax return. Luckily, electronic records are usually sufficient to substantiate a payment, but since the electronic records your bank provides may only go back so far, you may need to act fast to collect the records you need. Here are some tips:

  • Know your bank. Understand what your bank keeps and for how long. This includes digital statements and digital copies of checks (both front and back). Find out if there are any fees charged if you need to request copies of payments.
  • Retain copies of all bank statements. Review your records to ensure you have copies of all monthly bank statements. This is often the starting point for an IRS agent that wants proof of payment, so it should be yours as well. These copies may be in either paper or digital format. Download online copies of your statements and place them in a password protected file.
  • Collect copies of tax related proof of payment. Go through your statements and mark the payments that will, in all likelihood, be used as a tax deduction. If the payment was paid by check, make sure you have copies of the front and back of each of these payments. If you do this work now, the copies are often still available online for no fee. Even online bill payments often have a digital copy that can be used.
  • Get independent acknowledgements. If you made larger payments you should also make sure you have independent acknowledgement from the merchant or organization to substantiate the deduction. This is true for charitable contributions of $250 or more, and any business or medical expenses.

By collecting this documentation each year, you can save yourself a lot of trouble in the future in the event that you should ever have to prove your deductions.

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.

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