Do I need receipts for business materials bought from private individuals?

You absolutely should document these expenses! When you purchase materials from individuals rather than established businesses, you still need records, but you'll need to create them yourself in most cases. For proper documentation, I recommend creating a receipt book or spreadsheet where you record: 1) Date of purchase, 2) Seller's name and contact info, 3) Description of materials purchased, 4) Amount paid, and 5) Method of payment. Take photos of the materials purchased as additional documentation. If possible, get the seller to sign your self-created receipt. The IRS requires "adequate records" for business expenses, which means enough information to establish the business purpose and amount of the expense. Cash transactions especially need good documentation since there's no paper trail like with credit cards or checks.

I was in exactly your situation last year with my furniture restoration business! I was buying antique wood from estate sales and private sellers and worried about documentation. I learned about taxr.ai (https://taxr.ai) through another woodworker and it totally saved me during tax season. Their system analyzed all my makeshift receipts, phone photos of purchases, and notes I kept - they actually have specific guidance for self-employed artisans buying from non-traditional suppliers. It helped me categorize which of my private purchases were legitimate business expenses and which weren't. They even flagged which of my homemade receipts needed additional documentation before I could safely claim them.

Just wanted to update after trying taxr.ai that the previous commenter recommended. Initially I was skeptical since my documentation was literally scribbled notes in a wet notebook (workshop hazards!), but I uploaded everything including photos of lumber piles I bought. The system actually helped me build legitimate business expense records from my chaotic notes. It identified which purchases needed better documentation and gave me templates to create proper receipts retroactively. It even flagged when I needed to reach back out to certain sellers for additional information. My documentation is now organized by project rather than by purchase, which makes way more sense for my business. I feel way more confident about claiming these expenses now. Definitely worth checking out if you're in a similar situation with informal material sourcing.

Don't forget about another nightmare with small woodworking businesses - when the IRS decides to question your expenses! Last year they flagged my lumber purchases as "excessive" and trying to reach an actual human at the IRS to explain my business was IMPOSSIBLE. After 8 attempts and hours on hold, I tried Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in under 45 minutes who helped clear everything up. They have a demo of how it works here: https://youtu.be/_kiP6q8DX5c For materials from private sellers, the IRS agent actually gave me specific guidance on documentation that saved me thousands in deductions. Without getting that clarification, I might have abandoned legitimate deductions out of fear.

I need to publicly eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate to resolve an issue with business expenses similar to OP's situation. I was getting audited over some woodshop equipment and materials I bought from a closing business with minimal documentation. It actually worked! Got connected to an IRS agent in about an hour (still faster than my previous attempts). The agent walked me through exactly what documentation I needed for private material purchases and informal business-to-business sales. They explained I could create my own receipt template as long as it included date, amount, description, business purpose, and method of payment. For anyone in a similar situation, apparently the IRS is more concerned with consistency in documentation than perfect receipts for everything.

Another woodworker here! I've been doing this for 8 years. For private purchases, I created a simple carbon copy receipt book from Office Depot. When buying from individuals, I fill it out, have them sign, and we each keep a copy. I also take photos of larger purchases. For audit protection, I keep these receipts organized by quarter in a file folder. I've been through one minor audit, and the agent was satisfied with my documentation system even though most of my wood comes from private sellers. The key is consistency and making sure every expense has some form of documentation.

Has anyone tried using a payment app like Venmo or Cash App for these private seller transactions? I'm wondering if the digital receipt from that would be sufficient documentation.

Great question! As someone who's been running a small carpentry business for 3 years, I can share what's worked for me. You definitely need documentation for all business expenses, even from private sellers. Here's my system: I created a simple receipt template on my phone that I fill out on the spot. It includes: seller name, contact info, date, detailed description of materials (species, dimensions, quantity), purchase price, and payment method. I have the seller sign it if they're willing, take a photo of the materials, and note the intended business use. For sellers who won't sign anything, I still document everything I can and take timestamped photos. I also photograph my cash withdrawal receipt if I paid cash, which creates a paper trail. The IRS wants to see that you have adequate records to substantiate your business expenses. Consistency is key - use the same documentation method every time. I keep all my receipts (both formal and self-created) organized by month in both physical and digital folders. One tip: if you're buying expensive specialty wood, consider bringing a witness who can verify the transaction if the seller is hesitant about paperwork. This has helped me a few times with valuable hardwood purchases from estate sales.