Since I teach so many tax seminars across the country, I am forced to read a lot of tax court cases. I am astounded at how many times a taxpayer loses in tax court for the same reason….lack of documentation. Simple as that. Lack of documentation. When it comes to business expenses you MUST have adequate documentation. Too many taxpayers waltz into tax court (after the IRS has disallowed all of their business expenses) and expect the judge to believe them solely based on oral testimony. That is absurd. And keep in mind that maintaining “adequate” documentation is NOT ROCKET SCIENCE. Let’s say you go to Costco in Eugene to buy some business items. Adequate documentation simply means recording what the purpose of the trip was, what was purchased and how many miles you drove. Here’s a novel idea…..how about recording all of that on the actual receipt from Costco? It will take you an entire 18 seconds to do that. Perfecto.
Now, there are some expenses that bear extra scrutiny by the IRS. These are the expenses that can have a personal element to them. The most well known ones are travel & entertainment and meals. These are the 2 biggies. They garner more scrutiny by the IRS because taxpayers are more likely to “fudge” here (say it ain’t so!). So, for vehicles, keep some kind of mileage log (you can buy one at any office supply store for pennies). For business meals, document the details (who was there, where did you go, cost, and business purpose)…..and, again, write all of that down on the actual receipt…..another 20 seconds of work! Bite the bullet….get it done. If you go to a business convention or trade show, don’t only keep hotel bills and restaurant receipts. Instead, attach those to the convention brochure showing the dates of the convention and what the subject of the convention was. Remember, MORE documentation beats LESS documentation.
As our government gets more and more hard up for money, one sure fire way to raise revenue is to audit folks and disallow expenses and make the taxpayer prove the validity of those expenses…..and DOCUMENTATION is the key. DOCUMENTATION. Don’t leave home without it.
I hope this got your attention! If you have ANY questions about this, please call my office. We can help!