Proving
Deductions without Canceled Checks
Careful
recordkeeping becomes more important than ever
The Check Clearing for the 21st Century Act (Check 21)
became effective on October 28, 2004. Check 21 allows your bank to
turn the information on your check into a new electronic substitute check.
After doing this, your bank can destroy your original check. This
means that your bank may stop returning your cancelled checks now or at
some point in the future. In any case, as more banks adopt the Check
21 procedures, more of your original checks will be destroyed and what you
will receive is a substitute.
How does Check 21 change the way you’re able to prove an expense that may
entitle you to a tax deduction or credit? The short answer is that you’ll
need to keep your past bank statements in good order. The IRS says that it
will accept bank statements that contain images of canceled checks and/or
substitute checks. To be used as proof, an account statement must show the
check number, amount, payee’s name, and the date the check was posted.
If all of the required information items are not included on your bank
statements, you may be able to access the images of your checks through
your bank's web site. You should download and print out the images
(front and back) of any checks written to pay tax-deductible expenses, and
keep those printouts in your tax files.
In order to keep track of your payments more easily for tax purposes, you
should also maintain a careful check register. That way, you’ll know on
which bank statement to look if the IRS ever audits you.
