According to Sec. 274(c), taxpayers who wish to report certain expenses must also provide specific detailed information. Even in cases in which the court believes an expense is legitimate, the taxpayer must provide adequate substantiation of the expenditure. There are four classes of expenses to which this all-or-nothing rule applies:
- Travel expenses, including lodging and meals while away from home
- Entertainment, amusement, and recreation-related activities or the rental of a facility for a related purpose
- Business gifts that have a value of $25 or less
- Expenses with respect to any listed property identified in Sec. 280(F)(d)(4)
Listed property refers to:
- Passenger cars or other vehicles that are used for transportation
- Types of property that are generally used for entertainment, recreation, or amusement
- Computer or peripheral equipment or any other property type identified in IRS regulations.
Requirements of Substantiation
Sec. 274 creates the impression that a taxpayer’s statement alone does not substantiate certain expenses. The taxpayer must substantiate business expenses that fall under any of the four aforementioned categories “by adequate records or by sufficient evidence corroborating the taxpayer’s own statement” of:
- The amount of the expense
- Time and place at which the expense was incurred; a description of the business gift of applicable
- The business purpose of the expense
- Business relationship to the taxpayer of the person who was entertained, used the rented facility, or received the business gift
The Importance of Keeping Records
The IRS’s emphasis on details in the expense reporting requirements illustrates how critical record-keeping can be for taxpayers. Individuals and businesses may struggle with keeping the detailed records the IRS requires to substantiate business expenses; therefore, it is advisable to consult a CPA for help. Gary M. Kaplan, CPA has more than 18 years of experience advising and assisting individual taxpayers and corporations. His services are available to clients in Florida, Washington, D.C., New York, Maryland, and Utah. Taxpayers from all backgrounds are encouraged to visit gkaplancpa.com or call 1(866)643-3560. Mr. Kaplan is qualified to work with a variety of tax and accounting situations, ranging from simple to complex.
