Best Business Practices for Photographers [91]
Invoices
Petty cash slips for small cash payments
Travel, transportation, entertainment, and gift expenses
If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expenses. For additional information on how to prove certain business expenses, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
Assets are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to compute the annual depreciation and the gain or loss when you sell the assets.
Employment taxes
There are specific employment tax records you must keep. Keep all records of employment for at least four years. For additional information, refer to Recordkeeping for Employers.
For more information, refer to their Publication 583, which is available on the IRS.gov website. One note about receipts—official, original receipts are not required for expenses less than $75. However, you must have a self-written note detailing the expense, what it was for, who was paid, how much, and the date of the expense. To be safe, include why— something like "batteries from street vendor for flash," if that's what you just purchased. The note should be timely for best proof—that is, a note made at the time the expense was incurred. Notes made after the fact are less persuasive.
If you are doing business with the federal government (and some state governments), they will require original receipts for travel-related expenses. Be sure to spell out your policy and consider whether you're willing to make an exception to your policy for these clients.
As for just how long you must keep your receipts, your insurance company or a lender might require receipts for longer than the IRS, so be certain you remain in compliance with their policies. However, it's important that you recognize the liability of keeping receipts too long. Statutes of limitations on audits can get confusing, so it is best to consult your own tax expert on this subject. That said, here's the lowdown: The statute of limitations for IRS audits is three years unless greater than 25 percent of gross income is omitted—then it is six years. In the case of fraud, there is no statute. Understand, though, if you do have receipts that go back 10 years and you are audited for a tax return from three years ago, if you say something during the audit such as, "I've been taking that deduction for the last 10 years" and you have your records, the IRS can require them. In a case such as this, your own records may increase your tax audit liability if fraud is found. We'll talk more later in this chapter about why your accountant should be representing you in the unfortunate situation that an audit occurs.
On some large advertising jobs, you may also be asked or required to provide receipts. Again, stressing the importance of keeping the original receipts as required by the IRS, press for providing copies and cite to the client that IRS regulations require you to provide the originals and that your invoice should suffice as a valid receipt for their IRS requirements, but that, if requested, you would provide photocopies of the receipts (if you are willing to do that).
I have spoken with more than one colleague who lists a "documentation fee" when they are required to spend the time producing all of the receipts and the justification for each. The production of this book of receipts includes each receipt attached to sheet of paper with a typewritten description of the purpose for the expense. Producing this book takes a great deal of time, hence you should be paid. You can include in your contract, as a term, something to the effect of: "It is our policy to not provide receipts for production charges or any expenses, as our invoice shall serve as your receipt for the work performed. In the event that we, at our sole discretion, do provide receipts for any charges or expenses, a Documentation Fee of