Which document is crucial for verifying tax deductions?

Invoices and receipts serve as crucial documents for verifying tax deductions because they provide tangible proof of expenses incurred in the course of business operations. These documents contain details such as the date of the transaction, the goods or services purchased, the amounts spent, and the parties involved in the transaction.

These records are essential not only for substantiating deductions claimed on tax returns but also for compliance with tax regulations, as they enable businesses to demonstrate that the expenses were necessary and directly related to the operation of the business. Having accurate invoices and receipts ensures that any tax deductions are legitimate, thereby reducing the risk of disputes with tax authorities or complications in the event of an audit.

Other options lack the same level of specificity required to support deductions. Bank statements, while useful for tracking cash flow, do not itemize the nature of expenses like invoices do. Profit and loss statements summarize financial performance over a period but do not provide direct evidence of specific expenditures linked to tax deductions. Business plans, on the other hand, outline strategic goals and financial projections, but they do not serve as evidence of actual transactions undertaken during the year for tax purposes.