Documentation, Logs and More

I learned in one of my very first college tax courses that tax deductions are granted as a matter of legislative grace.  Better said...no expenditure is deductible unless the law says so.

The law stipulates in most cases that deductions are not allowed unless properly documented according to the Internal Revenue Code and related regulations.  Strict documentation requirements are required for expenditures related to travel and entertainment and transportation (planes, trains and automobiles)

For travel, employees/taxpayers must submit a written statement of the time, place, destination and business purpose of the trip and the amount of expenses incurred by category (e.g., travel, meals, lodging). For meals or entertainment, the employee/taxpayer must submit a written statement showing time, place and cost of the event, who was entertained, and the business purpose of the meal or entertainment (if the event follows or precedes a business discussion, additional record keeping is required). Finally, the employee must keep and turn in to the employer documentary evidence such as receipts for all lodging expenses, and for other travel and entertainment expenses over $75.

Documentation related to the business use of automobiles and aircraft is also required in order to claim tax deductions.  Taxpayers are required to maintain logs supporting the business use of their automobile or an employer provided vehicle.  The value of personal use of an employer provided vehicle is required to be included in an employee's taxable compensation.

The IRS produced a publication that outlines documentation requirements for travel, entertainment and transportation expenses.  http://www.irs.gov/pub/irs-pdf/p463.pdf.  A handy table is included on page 26 that summarizes how to prove a variety of business expenses.

Our experience with IRS examinations is agents are expecting "substantial" compliance with documentation requirements summarized in this publication.  Taxpayers' failures to provide documentation can and will result in disallowance of deductions.  Do I need a log for my automobile expenses?  Yes, you do.

Is it time for a tune up of your documentation process for travel, entertainment and transportation?

Any tax advice contained in the body of this blog was not intended or written to be used and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.