Why Good Records Matter More Than Good Intentions

Issue# 1127

Happy New Year.

Lately, many clients have been asking whether they really need to keep receipts for IRS purposes. According to the University of TikTok, anything under $75 does not need a receipt. That is technically true. It is also dangerously misleading.

So let us be clear about when you can skip a receipt and when missing documentation will sink your deduction.

I will cover three things:

First, what the tax law actually says about the $75 rule.

Second, how this plays out in real life, including real court cases.

Third, what you should do now to protect your business.

The $75 rule does not exist on its own. It is an exception, and to understand an exception, you must start with the rule.

Under IRC §162, business expenses are deductible only if they are ordinary and necessary. The burden of proof is on you, not the IRS. You spent the money. You control the records. The IRS does not have to prove you are wrong. You have to prove you are right.

Because certain expenses are easy to abuse, Congress created IRC §274(d). For travel, meals, gifts, and vehicles, no deduction is allowed unless you can substantiate four things: the amount, the time and place, the business purpose, and the business relationship involved.

Treasury regulations explain how to do this. You need contemporaneous records, meaning a log or diary created at or near the time of the expense. You also need documentary evidence, such as receipts, for expenses of $75 or more. The key point is this: the $75 rule removes the receipt requirement, not the substantiation requirement.

In plain English, if you do not have a receipt, you must still record everything the receipt would have shown, in real time.

This is where people get burned.

Taxpayers have repeatedly lost in court because they relied on credit card statements, summaries created years later, or incomplete logs. Even when the expenses were real and reasonable, the deductions were denied because the records were not contemporaneous or detailed enough. The $75 rule did not save them. It never does.

Here is the practical takeaway. Do not build your system around the $75 exception. Treat it as a safety net, not a strategy.

Use technology. Photograph receipts. Attach them to transactions. Add a quick note for business purpose. Do it once, do it right, and move on with your life. An IRS auditor will not organize your records for you.

If you ever find yourself without receipts, the Cohan rule may allow estimates, but only for certain expenses and only as a last resort. Once you are relying on Cohan, you are playing defense, not offense.

Bottom line: the $75 receipt rule is real, but it is so narrow that it is not worth changing your habits. Keep the receipts. Build the system. Stay audit-proof.

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Disclaimer: This blog post is for informational purposes only and does not constitute legal, financial, or medical advice. It is not a recommendation for any specific action. Families should consult qualified professionals to understand how potential policy changes may apply to their unique circumstances.