What if you don't have receipts?

[kathy4530050]

There's a lot of packing and shipping involved in my business and I usually pay teenagers in my neighborhood cash for helping out after school. Most of these kids don't have bank accounts so I give them cash and if I don't pay any one person more than $600, I don't have to give them a 1099 at year's end. I log this as a business expense, but I don't have any receipts for the bk!

Total amount going out to kids with no receipts for the past 6 months: about $3,000. Anyone see a problem with this?

Thank you,

Kathy

[jessegirl]

There's a lot of packing and shipping involved in my business and I usually pay teenagers in my neighborhood cash for helping out after school. Most of these kids don't have bank accounts so I give them cash and if I don't pay any one person more than $600, I don't have to give them a 1099 at year's end. I log this as a business expense, but I don't have any receipts for the bk!

Total amount going out to kids with no receipts for the past 6 months: about $3,000. Anyone see a problem with this?

Thank you,

Kathy

Do you have an attorney? If so you need to ask him. Not sure if this is a problem. I guess it could be if the trustee asks for receipts.

[kathy4530050]

Do you have an attorney? If so you need to ask him. Not sure if this is a problem. I guess it could be if the trustee asks for receipts.

Yes, I do have an attorney, but forgot to ask him about this. I've been doing this for years and years and, honestly, it just occurred to me that this could be a problem with the bk.

[jessegirl]

Yes, I do have an attorney, but forgot to ask him about this. I've been doing this for years and years and, honestly, it just occurred to me that this could be a problem with the bk.

I would going forward start keeping receipts to show some proof. As you know my situation, the UST wants the information that they want and if you can't get them what they want they will dig deeper.

[kathy4530050]

I would going forward start keeping receipts to show some proof. As you know my situation, the UST wants the information that they want and if you can't get them what they want they will dig deeper.

If there's going to be a problem, it would be in the look back period, right? I think I'm going to file in the next month or two. I have documentation--names, dates, and hours worked, but that's all. What if I just had these kids sign next to their names or something that would indicate that the dates and amounts are correct?

[OhioFiler]

I would not worry about it unless the trustee makes an issue of it. If the trustee asks, you answer honestly. I think most trustees would recognize you are telling the truth and pass on it as an issue.

If you end up audited then I suppose you may need to produce some proof of payment. It could be as simple as an Excel spreadsheet with dates, amounts and payees.

[kathy4530050]

I would not worry about it unless the trustee makes an issue of it. If the trustee asks, you answer honestly. I think most trustees would recognize you are telling the truth and pass on it as an issue.

If you end up audited then I suppose you may need to produce some proof of payment. It could be as simple as an Excel spreadsheet with dates, amounts and payees.

Thank you. I hope you're right!

[fltoo]

This has nothing to do with your BK. It is an entry of expenses for your P&L.

The IRS has no problem with "casual labor" expense as it allows it, but, as you know, keep it under 600. per person.

[kathy4530050]

This has nothing to do with your BK. It is an entry of expenses for your P&L.

The IRS has no problem with "casual labor" expense as it allows it, but, as you know, keep it under 600. per person.

I don't understand how could this have nothing to do with my BK. My expenses are the only thing that brings my income down. And, if I understand correctly, for the Bk, the more, the better. If it didn't matter, I could arbitrarily 'create' a LOT of 'casual labor' expenses that I don't have receipts for and bring my net way, way down. I'll give the trustee as many P&L statements as they want, but if I can't back up all of my expenses, I think I could be in trouble.

[fltoo]

You are filing chapter 7. You are giving your lawyer your income tax returns which has your business profit or loss and your schedules as to how you arrived at your income.

Unless asked, you have no need to submit your P&L statements.

The expenses you are using have more to do with what the IRS allows, not the Trustee.

I gave my lawyer my tax returns, nothing else. You are overthinking this process. Unless there is something really fishy in your tax schedules, the Trustee is not going to ask for financial statements to back up what you gave the IRS. Everything he needs is in the tax return.

If you can't prove your expenses, the trustee is the least of your problems. The IRS will be on your back.

[kathy4530050]

You are filing chapter 7. You are giving your lawyer your income tax returns which has your business profit or loss and your schedules as to how you arrived at your income.

Unless asked, you have no need to submit your P&L statements.

The expenses you are using have more to do with what the IRS allows, not the Trustee.

I gave my lawyer my tax returns, nothing else. You are overthinking this process. Unless there is something really fishy in your tax schedules, the Trustee is not going to ask for financial statements to back up what you gave the IRS. Everything he needs is in the tax return.

If you can't prove your expenses, the trustee is the least of your problems. The IRS will be on your back.

Maybe this is a district/region thing. Two attorneys I've consulted with have told me to have at least 6 months P&L statements and all of my receipts for all expenses over $100--business and personal. Several small business owners on this forum have also been asked to produce P&L statements.

There is absolutely nothing unusual with my tax returns. I have an LLC and file a 1040 with a Schedule C. Perhaps the lawyers I have consulted with are just being cautious or, more likely, they know what to expect from our local trustees.

[fltoo]

Ok, the lawyer is asking for them in case. Makes sense. I had already told my lawyer that I had all paperwork to back up my schedule C so he probably didn't request it unless I ran into trouble.

But, as far a casual labor expenses, I just kept a log of who worked, when and how much I paid them. I have never been audited by IRS, so who knows if that is enough when audited. I have been just documenting like this for years.

CPA told me years ago that I could claim up to 5000. in casual labor with no red flag. But, it depends on what kind of business and what kind of labor you need to employ. I always made sure all my expenses were in the same ratio of past years.

I only used contracted and casual labor. Sounds like you should be okay.

[jessegirl]

Kathy - I would just going forward keep records. If though the records would be after the filing of your BK, i still shows what kind of expenses you incurr. You could make a spread sheet up now with the expenses before you filed. When I could not produce some proof of expenses, the trustee did look at some expenses that I would have after the bk. Cause most of the times the UST is looking to through you in a 13 or dismiss you, so you have to prove that you cannot fund a 13 cause of your expenses. You never know what the trustee will ask for if he gets involved. Be prepared, so you are not going crazy when and if he gets involved....

When the UST gets involved they want proof of all expenses. So yes, it would have to do with your BK,

[kathy4530050]

Thanks everyone. I just want to be as prepared as possible. I am hoping that if I give them everything they want and more that no red flags will be raised. StartingOver suggested I "bury them in paperwork". Seems like a really good idea.

[lrprn]

Have you captured the cash paid out on your business tax filings each year? (Just thinking your tax returns could be your proof just in case.)