Poor Expense Records Cost Business Owner $27,000
The good news is that there’s no one right way to keep these records. According to the IRS, you can use any method of tracking expenses you like if it works for you and your business.
However, whatever method you use, you still have to be able to substantiate the time, place, amount, and business purpose of each expense, plus the business relationship of any person you entertained.
Recently the U.S. Tax Court criticized a small businessman for poor tax records and refused to allow him to deduct $27,759 in expenses.
The businessman used a diary to track his expenses, but the court found that he didn’t fully substantiate them. He sometimes used only a person’s first name for a business meeting, tracked miles driven but didn’t clearly show that they were for a business purpose, deducted personal meals without clarifying their relation to the business, deducted some items for which he was reimbursed, and used travel reservation confirmations as substantiation without showing that the items were actually paid for later.
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