How to get better restaurant reviews: deliver an ‘amazing experience’
For the last few months we’ve been delivering you (pun intended) a series of articles on how to create an atmosphere conducive to meeting the goals...
1 min read
The Kaizen Team
:
Aug 31, 2023 5:42:03 PM
In an October 10, 2019 ruling, the Tax Court delivered a verdict against a business owner who suffered the unfortunate loss of their business records in a devastating fire. As a result, the IRS rejected their deductions for travel and meals since the rules mandate that these deductions be substantiated, which the business owner was unable to do. The fire, already devastating, cost this business owner thousands in deductions.
Nobody likes to lose money, especially when it's completely preventable. Let's look at how you can avoid 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! Let's talk.
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