Business Expenses - Substantiation Requirements

by Kenneth Hoffman in ,


In order to claim any deduction, a taxpayer must be able to prove, if the return is audited, that the expenses were in fact paid or incurred. Small expenses and those which are clearly related to the business may be substantiated by the taxpayer's statement or by keeping receipts, sales slips, invoices, canceled checks, or other evidence of payments.

 The following expenses, which are deemed by the IRS as particularly susceptible to abuse, must generally be substantiated by adequate records or sufficient evidence corroborating the taxpayer's own statement: expenses with respect to travel away from home, including meals and lodging, entertainment expenses, business gifts, and expenses in connection with the use of “listed property”.

 The expenses must be substantiated as to the amount, time and place, and business purpose. For entertainment and gift expenses, the business relationship of the person being entertained or receiving the gift must also be substantiated (Temp. Reg. §1.274-5T(a)-(c)). See “Auto Expenses Allowed when Loss of Mileage Log Wasn't the Taxpayers' Fault

 If you have employees, and you reimburse your employees for their business related expenses under an accountable reimbursement plan, you must require your employees to satisfy the foregoing substantiation requirements in order to be treated as an accountable plan.

If you have any questions about the substantiation requirements or what is an accountable reimbursement plan, please contact us.