Let’s say during the first week of March you left your business environment to a neighboring state to have a look of some of their construction equipment’s you will like to buy and you spent three days.
The last week of March you had to leave for a retreat on and workshop on dealing with the best practice of the business industry.
The time for tax comes in and you want to deduct the expense you incurred when you went on both trips?
That seems right but you can only do that if you have proof that you incurred those debts during the business trip. But, if you are unable to provide documents to back up your claim, the internal revenue service (IRS) is likely to reject your claim.
This is simply because the IRS doesn’t take the word of tax payers unless the taxpayer can verify that the tax deduction is really worth it. Business expenses are large deductions and substantiation of business expenses is quite easy only with evidence.
For you to claim credits on your personal income tax return or certain deductions on your business return, a proof of expense must be provided by you to help.
The following are what is required of you to claim business expense;
THE GENERAL RULE;
Starting with the federal tax law, it is stated that trade or business expense only qualify for a deduction if you can substantiate it. Proof of amount of the payment and evidence to back up the character of the expense are the two major things you need to substantiate a business deduction.
Proof of payment
The IRS has stated that proof of payments can be cancelled check and account statements prepared by a financial institution. The prepared account statement must show the following;
Cases when you can’t provide cancelled check or account statement to prove payment, the IRS requires you to provide other evidence of payment which include the combination of;
To establish your entitlement to deduction for business expense, you will need more than proof of payment.
The following are items that you must keep to help you substantiate the character and deductibility of the business expense;
It is also important to state that travel expenses, business gifts, and entertainment expenses have a stricter substantiation requirement and internal revenue service (IRS) will only allow deduction for these expenses if some additional information can be provided. The additional information must have records that corroborate your statement.
The following document and records that establish element of expenditure must be kept to meet adequate record requirement;
Failure to provide records and information to back up the business expense and its character means the Internal revenue service (IRS) will disallow the business expense deduction and you are very much likely to face interests and penalties.
The bottom line is that only properly documented business expense can be accepted and if otherwise, you incur the tax liability.