No Records, No Deduction
Imagine that it is tax season and you’re sitting across from your accountant. You’re trying to explain some of the expenses on your books, including a client dinner, Facebook ads, a new laptop, and mileage from a road trip where you pitched three potential clients.
Your accountant asks, “Do you have any receipts or supporting documentation for these expenses?”
You say, “Well… no, but I remember it.”
Unless it is one of the specific expenses under the $75 exceptions, that are listed below, game over. You may have lost the deduction.
Exceptions:
Meals (still must record date, place, business purpose, and who was with you)
Transportation (e.g., taxis)
Some other miscellaneous costs
(This exception doesn’t apply to lodging or entertainment.)
It doesn’t matter how honest you are. It doesn’t matter how hard you worked. If you can’t prove it was business-related, you may not be able to deduct it.
This isn’t about whether you deserve the write-off. It’s about whether you can back it up.
And if there’s one mantra every business owner should have burned into their brain during tax season, it’s this:
Outside of the $75 exception, if there are no records, there is no deduction. End of story.
This isn’t about your accountant being a buzzkill. It’s about the IRS having zero leniency when it comes to documentation. So let’s talk about why detailed recordkeeping isn’t optional and how to make it part of your day-to-day without going full spreadsheet goblin.
The Real Cost of Not Keeping Records
Think about it this way: every receipt you don’t document is money left on the table.
If you can’t prove that expense was for the business, the IRS treats it like it never happened. It doesn’t matter if the money actually came out of your account, even if it was a totally legit business cost. If you can’t show the paper trail, it doesn’t count.
Worse than that, you’re probably not even claiming expenses you’re allowed to deduct, because they got lost in the shuffle, never made it into your books, or disappeared into the mess of your inbox.
So now you’re overpaying on taxes and underreporting your expenses. Congrats. You’re working harder and making less.
What Counts as Proof?
The IRS has a clear and kind of boring standard: your expenses need to be “ordinary and necessary” for your type of business. But saying “I swear it was necessary” doesn’t hold up.
To properly back up a deduction, you need three things:
A receipt, invoice, or bank record
The date, amount, and what the expense was for
Who it was for (especially if it involves meals, travel, or client entertainment)
That’s the paper trail. And yes, digital copies are totally acceptable. In fact, they’re better because they don’t fade, crumple, or end up under the car seat with last week’s granola bar.
What If You Can’t Find the Records?
Then you’re more than likely out of luck.
If you lose a receipt, you can always try to reconstruct the expense:
Make a note of the transaction with date, amount, vendor, and purpose
Attach a bank/credit card statement
Email the vendor and request a copy
Keep a spreadsheet or log for cash expenses
Keep in mind that in an audit, if you can’t provide documentation, the deduction gets tossed. And once the IRS starts tossing deductions, they often keep going. You’ll owe more in taxes, interest, and possibly penalties. Not fun.
But even if you don’t get audited, sloppy recordkeeping is still costing you. If you’re not tracking it, you’re not deducting it. And if you’re not deducting it, you’re throwing money away.
It’s Not Just About Taxes
Yes, taxes are the big stick. But the benefits of keeping clean records go far beyond April 15.
1. You’ll make smarter decisions.
When you know where your money’s going, you can actually manage it.
2. Your cash flow will thank you.
Tracking what’s coming in and going out means no more mystery overdrafts or surprise expenses.
3. You’ll look better to banks.
Thinking about a loan or line of credit? Lenders want to see records, not your personal assurance that “things are going great.”
4. You’ll sleep better.
Seriously. No more scrambling for documents at midnight or praying you don’t get audited. Just peace of mind.
What Should You Be Tracking?
Here’s a no-nonsense list of what every small business should be recording:
Receipts and invoices (both what you pay and what you send clients)
Credit card and bank statements
Mileage logs (if you’re driving for work)
Contracts, agreements, and proposals
Payroll and contractor payments
Business loan documents
Equipment and asset purchases
Inventory records
Any email, message, or document that supports the reason for an expense
If it involves money and your business, track it. If you’re not sure whether to keep it, keep it.
What About Digital Records?
They’re not only allowed, they’re encouraged.
Software like QuickBooks let you snap a photo of a receipt and link it directly to the transaction.
Use a cloud drive like Google Drive or Dropbox to organize backups by month or expense type. Label your folders. Don’t get cute. Future-you will appreciate it.
You can also give your team access to upload their receipts and tag expenses if they’re making purchases on behalf of the business. Tools like BILL Spend & Expense (formerly Divvy) or Ramp make this painless.
Bottom line: keep your receipts where you can find them, in a format you’ll actually use.
How to Set Up a Recordkeeping Habit (Without Losing Your Mind)
1. Separate your business and personal finances
This is the first hill your accountant will die on. Use a dedicated business account and card. Full stop.
2. Save receipts right away
Don’t wait. Snap the photo, upload the file, or forward the email the second you make a purchase. Make it a reflex.
3. Reconcile monthly
Take an hour once a month to match receipts to statements and make sure nothing slipped through. If this makes your eyes glaze over, hire a bookkeeper. It’s worth it.
4. Meet with yourself (or your accountant) every quarter
Review the numbers. Check for missing data. Look at your profits, your expenses, and your projections. The point is to stay in control, not play catch-up when it’s already too late.
Let’s Wrap This Up
You don’t need to become a forensic accountant. You just need to care enough to build a habit. Because when the IRS comes calling, or a client wants clarification, or you’re trying to understand why you’re profitable on paper but broke in reality, your records will give you answers.
Without them, you’re just guessing.
And guesswork doesn’t hold up in a tax audit.
So if you remember one thing from this entire article, make it this:
No records, no deduction (the majority of the time).
Simple. Brutal. And totally avoidable.
