The $75 Receipt Rule: What the IRS Actually Requires (and What's a Myth)

Most accountants will tell you: "Save every receipt over $75."

That's a simplification of IRC §274(d) and the regs underneath. The reality is more nuanced, and getting it wrong is what loses audits.

The Actual Rule

For most ordinary business expenses, you need:

1. Amount
2. Date
3. Place (or business purpose)
4. Business reason

Bank statements + credit card statements satisfy 1-3 for charges over $75. They DON'T satisfy #4.

Where the $75 Threshold Comes From

Treas. Reg. §1.274-5(c)(2)(iii) — for lodging, transportation, and entertainment, you need documentary evidence (receipt, bill, voucher) for any expense of $75 or more. Below $75, your written records are sufficient.

For other categories (supplies, advertising, contractor payments), there's no statutory $75 threshold — but the IRS strongly prefers receipts for any meaningful expense. In an audit, the burden of proof is on you.

The Three Categories With Stricter Rules (§274(d))

These ALWAYS need receipts regardless of amount:

1. Travel (lodging, transportation when away from tax home)
2. Vehicle expenses (mileage logs are mandatory)
3. Gifts ($25 limit per recipient per year)

Plus business meals, which need:

• Receipt
• Business purpose
• Person you ate with (name, business relationship)

What Counts as a "Receipt"

Per IRS Pub 463 and the §274 regs:

• ✅ Itemized merchant receipt (paper or digital)
• ✅ Credit card statement IF it shows the merchant + amount + date
• ✅ Canceled check
• ✅ Email confirmation for online purchases
• ✅ Calendar entry + brief note for meeting locations
• ❌ Bank statement alone (doesn't itemize what was bought)
• ❌ Generic "Amazon" charge without invoice (Amazon emails have the invoice)

How Long to Keep Records

The IRS statute of limitations on assessments:

• 3 years — standard
• 6 years — if you understate income by 25%+
• Forever — if you fail to file or fraud is alleged

Keep everything for 7 years to be safe. Electronic copies are 100% acceptable per Rev. Proc. 97-22 — you don't need paper.

The Audit Reality

In a small-business audit, the examiner will request:

1. All bank and credit card statements for the year(s) under audit
2. A general ledger or QuickBooks file
3. Receipts for every expense category they're testing
4. Mileage log if you claimed vehicle expenses
5. Bank reconciliations

If you can't produce a receipt for a contested expense, the IRS will disallow it under the Cohan rule they may estimate, but only if you can prove the expense WAS made. Without ANY proof, the deduction is gone.

Practical System

The system that survives audits:

1. One business credit card / bank account. Every business charge goes through it. No personal expenses ever.

2. Email all receipts to a dedicated address. Set up receipts@yourbusiness.com and forward every digital receipt. Most accounting software (Accountaxed included) parses these automatically.

3. Photograph paper receipts immediately. Apps like Expensify, Dext, or your bookkeeping tool's mobile app. The IRS accepts photo receipts under Rev. Proc. 97-22.

4. Note the business purpose in the bank-feed memo. "Lunch with [client name] re: project Y" — at the time of the expense.

5. Reconcile monthly. A reconciled bank statement is the foundation of audit defense.

What Accountaxed Does

Our Audit Engine flags every expense over $75 without a receipt URL attached. The "Missing Receipts" finding tells you exactly which transactions are at risk and by how many points it's docking your audit grade.

If you're sitting on hundreds of uncategorized transactions and don't know which ones need receipts, run a free audit and see the list in 30 seconds.