Are Your Business Expenses Properly Substantiated?
Tax Tip:
Businesses can generally deduct their “ordinary and necessary” business expenses. But even a legitimate expense isn’t deductible unless it’s adequately substantiated.
Typically, substantiation requires proof of payment and evidence showing the character and deductibility of the expenditure. Proof of payment may include canceled checks, bank statements, credit card statements or invoices marked “paid.” You can establish the character and deductibility of an expense with items such as sales slips, invoices, receipts, payment acknowledgments and check registers. A canceled check may also suffice if it indicates the nature of the expense.
If a business can’t fully substantiate an expense, the courts have some leeway to approximate deduction amounts, provided the business presents sufficient evidence to support an estimate. However, this approach isn’t available for expenses that are subject to heightened substantiation requirements, such as travel, meals and entertainment
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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