Are you eligible for these tax deductions?

D. David Hebebrand CPA.

Proving tax deductions without cancelled checks

There is a growing trend toward remote deposit of checks. Because of the increasing sophistication of smart phones, you can now photograph a check written out to you and digitally send it to your bank for deposit. Most banks discontinued the practice of retaining a paper version or copy of your checks. Banks are allowed to truncate each of your checks, create a new electronic negotiable instrument called a substitute check and then destroy the originals.

This industry change has important tax consequences for taxpayers who previously used checks to substantiate their expenses or charitable contributions. But the bottom line is that you are allowed to use a substitute check as proof of payment because it is legally the same as the original check. The IRS, therefore, must accept your substitute check as proof of payment.

Many individuals have switched to online banking. If so the IRS will accept image statements of substitute checks as proof of payment. If, however, an IRS auditor is suspicious that the image statement is not genuine, you may still be requested to order the actual substitute check from your bank. This will be a rare instance, however, and will likely occur only if you are audited. As an additional precaution, we suggest that you download and print out your bank statements at the end of the year. That way, even if you are audited several years from now, you'll have a record that's easy to access.

If you still rely on paper bank statements and paper copies of your checks, keep them in good order. The IRS will still accept bank statements that contain images of cancelled checks and/or substitute checks to be used as proof. The account statement must show the check number, amount, payee's name, and the date the check was posted. To keep track of your payments more easily for tax purposes, you should also continue to or begin to maintain a careful check register. That way, you'll know on which bank statement to look if you are ever audited.

Can I deduct car expenses for business, medical and charitable purposes?

Yes, and the easiest method to deduct your car expenses is to use the standard mileage rates set by the Internal Revenue Service (IRS). For 2023 you are allowed to deduct 62.5 cents per mile for business mileage. The medical milage rate is 22 cents per mile. The charitable mileage rate is 14 cents per mile. The use of these rates simplifies your record keeping since you do not have to keep track of gas & oil, repairs, insurance, and license amounts, nor do you have to set a ratio of business to personal use of your vehicle. You are only required to keep a record of the miles driven (date, distance, purpose). A mileage logbook or spreadsheet will suffice. To deduct the medical or charitable auto expenses, you will need to itemize your deductions.

Please do not hesitate to call our office regarding these matters.

Moats and Hebebrand CPAs is located at 20231 Valley Blvd., Ste. E or call (661) 822-1750.