Table of Contents
If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. This chapter discusses the records you need to keep to prove these expenses.
Table 5-1 is a summary of records you need to prove each expense discussed in this publication. You must be able to prove the elements listed across the top portion of the chart. You prove them by having the information and receipts (where needed) for the expenses listed in the first column.
You should keep adequate 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 adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.
You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.
You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. ( Accountable plans and per diem allowances are discussed in chapter 6.)
Your expense, other than lodging, is less than $75.
You have a transportation expense for which a receipt isn’t readily available.
The name and location of the hotel.
The dates you stayed there.
Separate amounts for charges such as lodging, meals, and telephone calls.
The name and location of the restaurant.
The number of people served.
The date and amount of the expense.
If you are a sales representative who calls on customers on an established sales route, you don’t have to give a written explanation of the business purpose for traveling that route. You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence.
If you don’t have complete records to prove an element of an expense, then you must prove the element with:
Your own written or oral statement containing specific information about the element, and
Other supporting evidence that is sufficient to establish the element.
If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Documentary evidence can be receipts, paid bills, or similar evidence.
If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Invoices of deliveries establish when you used the car for business.
|IF you have expenses for . .||THEN you must keep records that show details of the following elements . . .|
|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).||Purpose: 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. (Also see Business Purpose.)||Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent. (Also see Business Purpose.)||Purpose: 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.
Relationship: 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. For car expenses, the date of the use of the car.||Your business destination.||Purpose: Business purpose for the expense.
You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.
You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records .
You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records .
You have presented other evidence for the element that is the best proof possible under the circumstances.
This section explains when expenses must be kept separate and when expenses can be combined.
Table 5-3. Weekly Traveling Expense and Entertainment Record
From: To: Name:
|Bus – Train|
|Cab and Limousine|
|2. Meals and Lodging:
| Hotel and Motel
(Detail in Schedule B)
(Detail in Schedule C)
|Telephone & Telegraph|
|Stationery & Printing|
|5.Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year.)
(Detail mileage in Schedule A.)
|Gas, oil, lube, wash|
|Parking fees, tolls|
|Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75.00 or more.|
|Schedule A – Car|
|Schedule B – Lodging|
|Hotel or Motel||Name|
|Schedule C – Entertainment|
|Date||Item||Place||Amount||Business Purpose||Business Relationship|
|Travel and transportation expenses|
You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date. For a more complete explanation of how long to keep records, see Pub. 583, Starting a Business and Keeping Records.
You must keep records of the business use of your car for each year of the recovery period. See More-than-50%-use test in chapter 4 under Depreciation Deduction.
You claim deductions for expenses that are more than reimbursements.
Your expenses are reimbursed under a nonaccountable plan.
Your employer doesn’t use adequate accounting procedures to verify expense accounts.
You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6.
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