Fenner, Melstrom & Dooling PLC
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Documentation Is the Key to Business Expense Deductions
Keep in mind if you do not have proper documentation that supports your expense deductions and get audited by the IRS, your business will likely lose out on valuable deductions. Listed below are two recent U.S. Tax Court cases that help explain the rules for documenting deductions.
Case 1: Insufficient records
In the first case, the court found that a taxpayer with a consulting business provided no proof to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question.
The business owner said the travel expenses were acquired caring for his business. That is not enough supporting documentation according to the IRS. “The taxpayer bears the burden of proving that claimed business expenses were actually incurred and were ordinary and necessary,” the court stated. In addition, businesses must keep and produce “records sufficient to enable the IRS to determine the correct tax liability.” (TC Memo 2016-158)
Case 2: Documents destroyed
In another case, a taxpayer was denied many of the deductions claimed for his company....