In the February 2015 issue of The General Ledger, a publication of the American Institute of Professional Bookkeepers, a case of the IRS denying travel expenses is detailed. According to IRS §274, Disallowance of certain entertainment, etc., expenses, a higher level of documentation is required to prove travel and entertainment expenses. Worksheets prepared after the fact are not considered good proof of expenses. You cannot rely simply on bank and credit card statements or invoices. The IRS wants to see receipts that document the date, amount of payment, payee, a description of what was purchased, and the business purpose of the expenses.
In today’s age of “paperless” offices, many business owners falsely believe that bank and credit card statements are enough to document business expenses. Please keep your receipts with contemporaneous notes to document the relevant information listed above. This is the best way to insure you are allowed all of your tax deductions.
We encourage clients to keep a very simple filing system to keep their receipts. Use an envelope for each month of the year to keep your receipts organized chronologically. Write on the receipts other relevant information. For example, to document a business meal, write the name and business name of who joined you for the meal as well as the nature of the business matters discussed.