Have unreimbursed business trip expenses or use a personal car for business?
If so, the IRS requires that you keep a specific, detailed account book, log or similar record to deduct those expenses on a tax return.
As one taxpayer learned in a recent U.S. Tax Court decision, Garza v. Commissioner, employees claiming deductions for items such as travel and lodging must produce detailed records validating the expense.
Without the proper records, the IRS is entitled to deny the deduction.
"This ruling confirms the extent to which individuals have to prove certain business-related deductions, which may catch many by surprise," said Steve Erchul, CPA, Managing Principal at Smith, Schafer & Associates, Ltd. in Edina, in a news release. "Estimates for these expenses, such as mileage on your vehicle or the cost of meals and hotels, are not sufficient. And the excuse that it's 'too much to track' is not going to fly with the IRS."
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The Minnesota Society of Certified Public Accountants has compiled a list of deductible expenses requiring strict substantiating records:
• Travel expenses (including meals and lodging while away from home).
• Any item that constitutes entertainment, amusement, or recreation, or a facility used in
connection with this activity.
• Business gifts (limited to $25).
• Expenses related to listed property (including vehicles and computer equipment).
To support these deductions, individuals must produce all of the following:
• The amount of the expense or other item.
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• The time and place of the travel, entertainment, amusement, recreation, or use of the facility
or property, or the date and description of the gift.
• The business purpose of the expense or other item.
• The business relationship of the persons entertained, using the facility or property, or receiving the gift.
Without these specific records, the IRS will deny business-related deductions, the Minnesota Society of Certified Public Accountants reports.
