What are the IRS receipt requirements for business expense receipts?
The IRS receipt requirements for both $75 and under expenses and expenses, in general, are straightforward. Each receipt should include:
- Date, time, and amount
- The name of the business where the employee made a payment and created the expense
- Receipt should be an original unless the original is unavailable
- Receipt should be accompanied by an invoice or bank statement if possible
What counts as deductible business expenses?
Business expenses are deductible if they’re “ordinary and necessary” to help the business make money.
Ordinary and necessary expenses are expenses that are typically used in an industry and help create profits. For example, if you run a mobile pet grooming business, a large van to move supplies and perform services will be tax deductible. However, having an expensive two-seat sports car that isn’t typically used to perform services in the pet grooming industry will not be deductible.
Does the IRS require receipts under $75?
For companies not yet leveraging corporate cards, the IRS receipt requirements for $75 expenses states that if the expense follows a proper employee reimbursem*nt plan, expenses under $75 other than lodging do not necessarily require a receipt to be tax deductible.
According to the IRS, the requirements for a business expense to be reimbursable are as follows:
- There is a business reason for the expense
- The employee incurred the expense during their normal duties
- The expense is documented, usually by *receipts or other original documents. (*The $75 receipt rule provides an exception to the general receipt requirement but must otherwise meet each of the guidelines)
- Excess reimbursem*nts are returned to the employer
- If the employee keeps excess reimbursem*nts, they will be counted as wages, and both the business and the employee will be responsible for the applicable payroll tax
Does my company need an expense reimbursem*nt plan?
The IRS strongly recommends companies that offer employee reimbursem*nts do so according to an expense reimbursem*nt plan.
Expense reimbursem*nt plans have guidelines that employees must follow to qualify for reimbursem*nt. For example, the state of Illinois requires employees to turn in mileage expenses within 30 days to be eligible for reimbursem*nt.
One way companies establish a robust expense reimbursem*nt plan is to offer per diem allowances to reimburse employees for expenses incurred for lodging, meals, and incidental expenses while traveling. These programs are popular among employers as per diem expenses are tax deductible and only require a per diem expense report to meet documentation requirements.
Per diems can save time and further streamline the expense reimbursem*nt process as employees can fill in the per diem expense report once each period rather than document each reimbursable expense with a receipt and other necessities.
Get more details on the IRS expense reimbursem*nt guidelines for 2023 on the IRS website here.
Corporate cards and expenses
Another way for companies to tackle business spend and tax-deductible expenses is with corporate cards and expense management software from solutions like Payhawk.
Many companies find corporate cards far more effective than reimbursem*nts for the following reasons:
- In-built controls like ATM blocks or spending limits
- Approval workflows for fund requests (with auto-approvals built-in)
- Real-time spend visibility so that the finance team can make informed decisions around cash flow and controls
- Real-time reconciliation as any spend or receipt data travel seamlessly to the ERP thanks to intelligent categorization
- Bill payments software
- Zero waiting time for reimbursem*nts (so no colleagues left out of pocket)
Summary
The $75 rule is an exception; with it, the IRS allows companies to deduct business-related expenses without needing a receipt. Company reimbursem*nt plans, such as per diem allowances, streamline the reimbursem*nt process by allowing for expense summary reports as sufficient documentation to prove when an employee incurred an expense and prove it was business-related.
Although receipts are not required under the $75 rule, keeping as much documentation as possible in case the IRS performs an audit or otherwise requires the documentation is always advisable.
If your business follows the 2023 IRS expense reimbursem*nt guidelines, your expense reimbursem*nts should run smoothly. But there are always ways to move faster, more effectively, and with better insights.
Book a demo to learn how Payhawk could supercharge how your business manages spending.
