How To Prove Business Tax Deductions or Expenses?
Generally, you cannot deduct amounts that you approximate or estimate. You should keep proper records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered Proper. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered a proper record.
What Are Proper Records? You should keep the proof you need in a log, account book, diary, statement of expense, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.
Exception. Documentary evidence is not needed if any of the following conditions apply.
|If you have expenses for:||THEN you must keep records that show details of the following:|
|Travel||Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc.||Dates you left and returned for each trip and number of days spent on business.||Destination or area of your travel (name of city, town, or other designation).||Business purpose for the expense or the business benefit gained or expected to be gained.|
|Entertainment||Cost of each separate expense. Incidental expenses such as taxis, telephones, etc., may be totaled on a daily basis.||Date of entertainment.||Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent.||Business purpose for the expense or the business benefit gained or expected to be gained.
For entertainment, the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity.Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you.
For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.
|Gifts||Cost of the gift.||Date of the gift.||Description of the gift.|
|Transportation||Cost of each separate expense. For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year.||Date of the expense.||Your business destination.||
Business purpose for the expense.
Exceptional circumstances. If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualty.
IRS Circular 230 Legend: Any advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax payments or penalties. Unless otherwise specifically indicated, you should assume that any statement in this website or articles that relating to any U.S. federal, state, or local tax matter was written in connection with the promotion or marketing. Disclaimer: Any articles herein is designed for general information only. The information presented at this site should not be construed to be formal legal or tax advice. Each taxpayer should seek advice based on the taxpayer's particular circumstances.
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