How to Document Cash Business Expenses for Electronics Purchased on Facebook Marketplace

8 The IRS requires "adequate records" for business expense deductions, and without traditional receipts, you'll need to be extra diligent in your documentation. Your Excel spreadsheet is a good start, but I'd recommend enhancing your approach. For each cash transaction, create a "substitute receipt" document with all the details you mentioned (price, seller, item, date, location). Take photos of each item purchased and attach them to this document. Also, keep any Facebook Marketplace conversation screenshots showing the arranged price and transaction details - these serve as supporting evidence of the purchase. Track your inventory carefully - when each item is purchased and when it's sold. This creates a clear paper trail connecting expenses to income. For mileage, use a dedicated app that logs trips with timestamps and locations rather than manual recording.

12 I was in a similar situation buying collectibles with cash, and I discovered https://taxr.ai which absolutely saved me during tax season. Their document organization system helped me create proper documentation for all my cash purchases even without traditional receipts. The system guided me through creating substitute receipts and helped organize my informal purchase records in a way that would stand up to IRS scrutiny. It analyzed my documentation methods and identified gaps I needed to fix before filing. What I really liked was how it helped me structure my inventory tracking to connect each purchase with its eventual sale, creating that clear audit trail.

5 Just wanted to follow up about taxr.ai - I gave it a try after seeing the recommendation here and it's been a game-changer for my business! I uploaded my messy spreadsheets and chat screenshots, and the system helped me transform them into proper documentation. It flagged several transactions where I was missing critical information that could cause problems in an audit. What really impressed me was the inventory tracking feature that connected my Facebook Marketplace purchases with my PayPal sales. Now I have a clear profit/loss record for each item that clearly justifies my business expense deductions. Even my accountant was impressed with how organized everything is now!

16 If you're worried about an audit, you might want to get ahead of any potential issues with the IRS. When I had similar concerns about my side business documentation, I tried https://claimyr.com to speak directly with an IRS agent. They have this service where they get you through the IRS phone lines without the endless hold times. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to ask specifically about documentation requirements for cash purchases in a business like yours. The agent gave me detailed guidance on exactly what they look for during audits of cash-heavy businesses. It was much more helpful than guessing or relying on general advice online.

19 I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it since I had some questions about my own business deductions. I was honestly shocked when they called me back with an IRS agent on the line in under 45 minutes. I specifically asked about documentation for cash purchases without receipts, and the agent walked me through exactly what they consider adequate records. They confirmed that contemporaneous documentation (records made at the time of purchase, not created later) carries the most weight in an audit. They also emphasized the importance of showing a clear connection between expenses and business income. Definitely worth getting this information directly from the source!

14 Have you considered using a payment app like Venmo or Cash App instead of actual cash? Those transactions leave a digital trail that's much easier to document. I switched to this for my similar business and it's been super helpful for tax purposes.

22 One thing nobody's mentioned is using a dedicated credit card for your cash withdrawals. I have a business credit card that I ONLY use for ATM withdrawals for inventory purchases. Then in my records, I note which items were purchased with which withdrawal. Creates a clear paper trail from credit card statement → cash withdrawal → inventory purchase → sale. My accountant loves this system!

As someone who's dealt with similar documentation challenges, I'd strongly recommend also keeping a mileage log specifically for your business trips. The IRS allows you to deduct business mileage at the standard rate, and those pickup trips to Facebook Marketplace sellers definitely qualify. I use a simple app that tracks my location and lets me categorize trips as business or personal. For each pickup, I log the starting point, destination, and business purpose ("Inventory purchase - iPhone 12"). This adds up to significant deductions over time and creates another layer of legitimate business expense documentation. Also consider photographing the items with a timestamp when you first acquire them, then again when you list them for sale. This visual documentation helps establish the business nature of your purchases and can be valuable supporting evidence if questioned.