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. You should also keep documentary evidence that, together with your record, will support each element of an expense.

 

Documentary evidence.   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.

 

Exception.   Documentary evidence is not needed if any of the following conditions apply.

  • 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.
  • Your expense, other than lodging, is less than $75.
  • You have a transportation expense for which a receipt is not readily available.

 

Adequate evidence.   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.

For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.

– The name and location of the hotel.
– The dates you stayed there.
– Separate amounts for charges such as lodging, meals, and telephone calls.

A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.

– The name and location of the restaurant.
– The number of people served.
– The date and amount of the expense.

If a charge is made for items other than food and beverages, the receipt must show that this is the case.

 

Canceled check.   A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose.

 

Duplicate information.   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.

You do not have to record amounts your employer pays directly for any ticket or other travel item. 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.

 

Timely-kept records.   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. A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall.

You do not need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record.

If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record.

 

Proving business purpose.   You must generally provide a written statement of the business purpose of an expense. However, the degree of proof varies according to the circumstances in each case. If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation.

 

IF you have expenses for:

THEN you must keep records that show details of the following elements:

 

Amount

Time

Place or
Description

Business Purpose
Business Relationship

Travel Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Dates you left and returned for each trip and number of days spent on business. Destination or area of your travel (name of city, town, or other designation). Purpose: Business purpose for the expense or the business benefit gained or expected to be gained.

Relationship: N/A
Entertainment Cost of each separate expense. Incidental expenses such as taxis, telephones, etc., may be totaled on a daily basis. Date of entertainment. (Also see Business Purpose.) Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent. (Also see Business Purpose.) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained.
For entertainment, the nature of the business discussion or activity. 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.

Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you.
For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.
Gifts Cost of the gift. Date of the gift. Description of the gift.
Transportation Cost of each separate expense. 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. Date of the expense. For car expenses, the date of the use of the car. Your business destination. Purpose: Business purpose for the expense.

Relationship: N/A

the use of your car for business purposes. Invoices of deliveries establish when you used the car for business.

 

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. 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. A return filed early is considered filed on the due date. For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records.

You must keep records of the business use of your car for each year of the recovery period.

 

Reimbursed for expenses.   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. However, you may have to prove your expenses if any of the following conditions apply.

  • You claim deductions for expenses that are more than reimbursements.
  • Your expenses are reimbursed under a nonaccountable plan.
  • Your employer does not use adequate accounting procedures to verify expense accounts.
  • You are related to your employer