Tax Deductions for Business Expenses – Recordkeeping

If you incur expenses related to your business, you may be able to deduct those expenses on your tax return. In previous articles, we touched on deductible business-related travel, entertainment, gift, and transportation expenses. This publication is focused on the requirements for recordkeeping in order to claim business-related expense deductions.

Recordkeeping / Adequate Evidence

If you plan to deduct travel, entertainment, gift, or transportation expenses, you must be able to demonstrate certain details about those expenses in order to deduct them. In general, evidence must be documented, based on receipts, cancelled checks, and invoices. Evidence should be supported with additional details maintained in a log book, diary, or expense report. The additional details do not have to duplicate information already demonstrated on the receipt, check, or invoice, but rather should complement that information.

Between the receipts and other third-party support, as well as other logs, you must prove the amount, date, location, and other relevant details about the expense. Following are the details you must document for each type of expense.

Travel

Documentation must include:

  • The cost of each travel expense, including travel, lodging, and meals.
  • The arrival and departure dates of each trip, as well as the number of days of the trip for business purposes.
  • The destination of each trip.
  • The business purpose of each trip.

Entertainment

Documentation must include:

  • The cost of each entertainment expense, separately or in aggregate in the case of incidental expenses.
  • The date of the entertainment.
  • The name and address or other description about the location of the entertainment.
  • The business purpose of the entertainment, the business benefit gained, and the relationship of each recipient of the entertainment to you.

Gifts

Documentation must include:

  • The cost of each gift.
  • The date of each gift.
  • A description of each gift.

Transportation

Documentation must include:

  • The cost of each transportation expense, including rental, repairs, improvements, and mileage.
  • The arrival and departure dates of each trip, as well as the number of days of the trip for business purposes.
  • The destination of each trip.
  • The business purposes of each trip.

Exceptions to Recordkeeping Requirements

Documentation evidence is not necessary in the following situations:

  • You incur meal and lodging expenses away from home and report them to your employer under an accountable plan using a per diem allowance.
  • Your expenses, other than lodging, are less than $75.
  • You incur a transportation expense for which a receipt is not available.

Timeliness of Recordkeeping

You should document your expenses as close as is possible to the date when they are incurred. The timeliness of recordkeeping is an element considered in determining the adequacy of evidence. A record prepared in a timely manner generally has more value than a record or statement give at a later date, when detailed elements may be more difficult to recall.

Expenses with Incomplete Records

If you have incomplete records related to an expense, you must document the additional details related to the expense. You must capture those details using:

  • Your own written or oral statements, which detail the missing information, and
  • Other direct supporting evidence.

Direct supporting evidence includes written and oral statements from others who benefited from the expense or witnesses.

Where can I get additional information about deduction of business-related expenses?

If you have additional questions about business-related expense deductions or you need additional help with your tax return, you should speak with a tax attorney. A tax attorney has the education and training to help make sure you perform the necessary recordkeeping and maximize your available deductions.

If you complete the form below or call the telephone number located at the top of this site, you can speak with a tax attorney. The initial conversation is free of charge, and all conversations with an attorney are protected by attorney-client privilege.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.