You Decide
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I would inform Sue that without the proper information that I was asking for and she was declining to give I would not be able to process her taxes using that information without proof of the receipts. I would inform Sue that I could go ahead and process her taxes with the correct proof of the itemized items such as:
Medical and dental expenses are considered an itemized deduction. In order to qualify for the itemized deduction, the total amount you paid for these expenses in 2011 must be more than 7.5% of your adjusted gross income. The IRS allows you to claim medical expenses paid for yourself, your spouse, your dependent child, and other dependent individuals (such as a handicapped relative). (IRS, 2011)
Some medical expenses you may not include are any expenditure that are mainly beneficial to your general health (such as over the counter drugs – excluding insulin). You also are not allowed to deduct any cosmetic surgery that is purely cosmetic in nature (such as a hair transplant). (IRS, 2011) Sect. 242
Self-employed individuals are allowed a variety of tax deductions by the IRS. These expenses are known as operating costs and are a necessary part of your business enterprise. These expenses are reported on Schedule C, which is filed along with your 1040 tax return. Operating costs you can deduct as a self-employed individual include: advertising, licenses and permits, business use of your vehicle, materials, office supplies, insurance premiums on business assets, utilities, business debt interest, equipment repairs and maintenance, travel, plus meal and entertainment expenses. Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job. Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. (IRS, 2011)
After explaining the itemized deductions I would also explain how a self-employed person must pay taxes. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording “self-employment tax” is used; it only refers to Social Security and Medicare taxes and not any other tax (like income tax). (IRS, 2011)
Bottom line I would explain to Sue I understand she needs her taxes completed in order to give them to the bank