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Irs Tax FilingIrs tax filing 5. Irs tax filing Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. Irs tax filing This chapter discusses the records you need to keep to prove these expenses. Irs tax filing If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. Irs tax filing You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. Irs tax filing These plans are discussed in chapter 6 under Reimbursements . Irs tax filing How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. Irs tax filing You must be able to prove the elements listed across the top portion of the chart. Irs tax filing You prove them by having the information and receipts (where needed) for the expenses listed in the first column. Irs tax filing You cannot deduct amounts that you approximate or estimate. Irs tax filing You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. Irs tax filing You must generally prepare a written record for it to be considered adequate. Irs tax filing This is because written evidence is more reliable than oral evidence alone. Irs tax filing However, if you prepare a record on a computer, it is considered an adequate record. Irs tax filing What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. Irs tax filing You should also keep documentary evidence that, together with your record, will support each element of an expense. Irs tax filing Documentary evidence. Irs tax filing You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Irs tax filing Exception. Irs tax filing Documentary evidence is not needed if any of the following conditions apply. Irs tax filing 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. Irs tax filing ( Accountable plans and per diem allowances are discussed in chapter 6. Irs tax filing ) Your expense, other than lodging, is less than $75. Irs tax filing You have a transportation expense for which a receipt is not readily available. Irs tax filing Adequate evidence. Irs tax filing Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. Irs tax filing For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. Irs tax filing The name and location of the hotel. Irs tax filing The dates you stayed there. Irs tax filing Separate amounts for charges such as lodging, meals, and telephone calls. Irs tax filing A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. Irs tax filing The name and location of the restaurant. Irs tax filing The number of people served. Irs tax filing The date and amount of the expense. Irs tax filing If a charge is made for items other than food and beverages, the receipt must show that this is the case. Irs tax filing Canceled check. Irs tax filing A canceled check, together with a bill from the payee, ordinarily establishes the cost. Irs tax filing However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. Irs tax filing Duplicate information. Irs tax filing You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. Irs tax filing You do not have to record amounts your employer pays directly for any ticket or other travel item. Irs tax filing However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. Irs tax filing Timely-kept records. Irs tax filing You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. Irs tax filing A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. Irs tax filing You do not need to write down the elements of every expense on the day of the expense. Irs tax filing If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. Irs tax filing If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. Irs tax filing This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. Irs tax filing Proving business purpose. Irs tax filing You must generally provide a written statement of the business purpose of an expense. Irs tax filing However, the degree of proof varies according to the circumstances in each case. Irs tax filing If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. Irs tax filing Example. Irs tax filing If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. Irs tax filing 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. Irs tax filing You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. Irs tax filing Confidential information. Irs tax filing You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. Irs tax filing However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. Irs tax filing What If I Have Incomplete Records? If you do not 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. Irs tax filing 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. Irs tax filing Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Irs tax filing Documentary evidence can be receipts, paid bills, or similar evidence. Irs tax filing 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. Irs tax filing For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Irs tax filing Invoices of deliveries establish when you used the car for business. Irs tax filing Table 5-1. Irs tax filing How To Prove Certain Business Expenses IF you have expenses for . Irs tax filing . Irs tax filing THEN you must keep records that show details of the following elements . Irs tax filing . Irs tax filing . Irs tax filing Amount Time Place or Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. Irs tax filing Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Irs tax filing Dates you left and returned for each trip and number of days spent on business. Irs tax filing Destination or area of your travel (name of city, town, or other designation). Irs tax filing Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Irs tax filing Relationship: N/A Entertainment Cost of each separate expense. Irs tax filing Incidental expenses such as taxis, telephones, etc. Irs tax filing , may be totaled on a daily basis. Irs tax filing Date of entertainment. Irs tax filing (Also see Business Purpose. Irs tax filing ) Name and address or location of place of entertainment. Irs tax filing Type of entertainment if not otherwise apparent. Irs tax filing (Also see Business Purpose. Irs tax filing ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Irs tax filing For entertainment, the nature of the business discussion or activity. Irs tax filing 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. Irs tax filing Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Irs tax filing For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. Irs tax filing Gifts Cost of the gift. Irs tax filing Date of the gift. Irs tax filing Description of the gift. Irs tax filing Transportation Cost of each separate expense. Irs tax filing 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. Irs tax filing Date of the expense. Irs tax filing For car expenses, the date of the use of the car. Irs tax filing Your business destination. Irs tax filing Purpose: Business purpose for the expense. Irs tax filing Relationship: N/A Sampling. Irs tax filing You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. Irs tax filing You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. Irs tax filing Example. Irs tax filing You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. Irs tax filing There is no other business use of the car, but you and your family use the car for personal purposes. Irs tax filing You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Irs tax filing Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Irs tax filing 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. Irs tax filing Exceptional circumstances. Irs tax filing You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. Irs tax filing This applies if all the following are true. Irs tax filing 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 . Irs tax filing You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . Irs tax filing You have presented other evidence for the element that is the best proof possible under the circumstances. Irs tax filing Destroyed records. Irs tax filing If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Irs tax filing Reasons beyond your control include fire, flood, and other casualties. Irs tax filing Table 5-2. Irs tax filing Daily Business Mileage and Expense Log Name: Odometer Readings Expenses Date Destination (City, Town, or Area) Business Purpose Start Stop Miles this trip Type (Gas, oil, tolls, etc. Irs tax filing ) Amount Weekly Total Total Year-to-Date Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. Irs tax filing Separating expenses. Irs tax filing Each separate payment is generally considered a separate expense. Irs tax filing For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. Irs tax filing You must record them separately in your records. Irs tax filing Season or series tickets. Irs tax filing If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. Irs tax filing To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. Irs tax filing You must keep records to show whether you use each ticket as a gift or entertainment. Irs tax filing Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. Irs tax filing See Entertainment tickets in chapter 2. Irs tax filing Combining items. Irs tax filing You can make one daily entry in your record for reasonable categories of expenses. Irs tax filing Examples are taxi fares, telephone calls, or other incidental travel costs. Irs tax filing Meals should be in a separate category. Irs tax filing You can include tips for meal-related services with the costs of the meals. Irs tax filing Expenses of a similar nature occurring during the course of a single event are considered a single expense. Irs tax filing For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. Irs tax filing Car expenses. Irs tax filing You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Irs tax filing Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. Irs tax filing Example. Irs tax filing You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. Irs tax filing You can account for these using a single record of miles driven. Irs tax filing Gift expenses. Irs tax filing You do not always have to record the name of each recipient of a gift. Irs tax filing A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. Irs tax filing For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. Irs tax filing Allocating total cost. Irs tax filing If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. Irs tax filing To do so, you must establish the number of persons who participated in the event. Irs tax filing An allocation would be needed, for example, if you did not have a business relationship with all of your guests. Irs tax filing See Allocating between business and nonbusiness in chapter 2. Irs tax filing If your return is examined. Irs tax filing If your return is examined, you may have to provide additional information to the IRS. Irs tax filing This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. Irs tax filing THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. Irs tax filing Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. Irs tax filing Travel Expenses: Airlines Excess Baggage Bus – Train Cab and Limousine Tips Porter 2. Irs tax filing Meals and Lodging: Breakfast Lunch Dinner Hotel and Motel (Detail in Schedule B) 3. Irs tax filing Entertainment (Detail in Schedule C) 4. Irs tax filing Other Expenses: Postage Telephone & Telegraph Stationery & Printing Stenographer Sample Room Advertising Assistant(s) Trade Shows 5. Irs tax filing Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. Irs tax filing ) (Detail mileage in Schedule A. Irs tax filing ) Gas, oil, lube, wash Repairs, parts Tires, supplies Parking fees, tolls 6. Irs tax filing Other (Identify) Total Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. Irs tax filing 00 or more. Irs tax filing Schedule A – Car Mileage: End Start Total Business Mileage Schedule B – Lodging Hotel or Motel Name City Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship WEEKLY REIMBURSEMENTS: Travel and transportation expenses Other reimbursements TOTAL How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Irs tax filing 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. Irs tax filing A return filed early is considered filed on the due date. Irs tax filing For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. Irs tax filing You must keep records of the business use of your car for each year of the recovery period. Irs tax filing See More-than-50%-use test in chapter 4 under Depreciation Deduction. Irs tax filing Reimbursed for expenses. Irs tax filing Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. Irs tax filing However, you may have to prove your expenses if any of the following conditions apply. Irs tax filing You claim deductions for expenses that are more than reimbursements. Irs tax filing Your expenses are reimbursed under a nonaccountable plan. Irs tax filing Your employer does not use adequate accounting procedures to verify expense accounts. Irs tax filing You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. Irs tax filing Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. Irs tax filing Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. Irs tax filing Prev Up Next Home More Online Publications
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