IRS announces new income tax brackets for 2024
It might seem like a long way off, but where tax planning is concerned, earlier is better. To help us get a get a jump on our tax planning for 2024,...
1 min read
The Kaizen Team
:
Nov 17, 2023 11:31:17 AM
In order to claim a deduction, the federal tax law requires that you provide evidence for a trade or business expense. This means you must show the purpose of the expense and prove the amount paid.
Substantiating a business deduction is crucial as it allows you to take advantage of valuable tax deductions. Losing out on these deductions is completely avoidable, so let's explore how you can prevent this costly mistake.
When it comes to deducting expenses paid in connection with operating your business, there are a some things to keep in mind:
You have two options for providing proof of business expenses:
This involves maintaining an expense management system like Dext. We like the features of Dext so much that we offer it to our clients at a discounted cost. The program streamlines recordkeeping by capturing and storing your receipts while seamlessly integrating with your accounting software.
Alternatively, you can log your purchases in an account book, diary, log, expense statement, trip sheets, or a similar record that is prepared at the same time as the expense. In addition, you must retain the necessary documentary evidence such as receipts or paid bills.
In certain circumstances where you are unable to produce adequate records due to circumstances beyond your control, such as a fire, flood, earthquake, or other casualty, you have the right to substantiate a deduction through a reasonable reconstruction of your expenses.
But, it's not as simple as that — this method requires you to provide secondary evidence, such as testimony from individuals you paid or evidence from third-party sources. It is important to note that this approach can be more challenging than relying on adequate records.
Federal income tax returns can be audited for up to three years after filing, six years if substantial under-reported income is involved, and the audit period is unlimited in the event of fraud.
Wondering how long you need to keep your records around? Check out our records retention guide next.
Above all, be sure your business-related records are organized, efficient, and in compliance with IRS regulations. If you're looking for help with your small business, reach out to us today!
It might seem like a long way off, but where tax planning is concerned, earlier is better. To help us get a get a jump on our tax planning for 2024,...
In order to claim a deduction, the federal tax law requires that you provide evidence for a trade or business expense. This means you must show the...
In the realm of business ownership, the perennial questions of "What can I deduct?" and "How can I save money?" reverberate through boardrooms and...