BANKING & FINANCE: The Paper Chase
One basic tax planningstrategy is to accelerate deductions to the extent possible. But totake those deductions, you must prove that you’re entitled to them.The IRS has numerous rules covering what constitutes appropriatedocumentation for your deductions:
Deductions for businesstravel and entertainment expenses, business use of cars, and businessgifts should be backed up by adequate records and evidenceshowing:
• the amount of theexpense
• the time andplace of the travel or entertainment, or use of the facility orproperty (for example, the use of a business car)
• the date anddescription of the business gift
• the businesspurpose of the expense or other item and, in the case of businessentertainment or gifts, the business relationship of the person beingentertained or receiving the gift.
Records should ideallybe kept in a diary, log, or other systematic format. To ease therecordkeeping burden, use a brief log combined with receipts toestablish time, place, amount, and business purpose.
To further minimizerecordkeeping requirements, the IRS recently finalized an increase to$75 for the “deminimis” threshold for requiring receipts to supportmost business meal, travel and entertainment deductions.
Although allaway-from-home lodging expenses and any other expense of $75 or morecontinues to be subject to the rules requiring receipts, the increasefrom the former $25 threshold is welcome relief from the paperchase.
Also, receipts for transportation expenses, such as public transit, aren’t required ifreceipts aren’t readily available.
The above requirementsassociated with deducting actual vehicle expenses can be burdensome,so some prefer to use the mileage method. Generally, those who havenot deducted actual expenses with respect to a vehicle may choose touse the mileage rate method for that vehicle. The business usemileage rate for 2000 is 32.5 cents per mile. Mileage incurred forcharitable purposes may be deducted at 14 cents per mile, and medicalor moving expenses may be deducted at 10 cents per mile. Thesubstantiation requirements for mileage-based deductions require onlya record of the time, place and purpose of business trips. Recordsand receipts of actual expenses are not required.
Whether you claim actualexpenses or use the mileage allowance method, you can deduct the costof business-connected tolls and parking, as long as there’s a recordand receipt of the expense.
Different documentationrequirements apply depending on the value of your contribution andwhether it is cash or property. In general, cash contributions under$250 should be supported with at least a cancelled check or similarrecord. If you’re audited, you may have to prove your deduction byfurnishing a statement from the charity, particularly if you receivedsomething of value in exchange for the contribution.
If you contributeproperty worth less than $250, you should obtain a receipt from thecharity showing your name, the date and location of the contribution,and a detailed description of the property. The value of the propertyneed not be stated on the receipt. Where a receipt isn’t requiredbecause of impracticality (for example, leaving property at acharity’s unattended drop site), keep reliable written records foreach item of donated property containing the above information,including the value of the property.
Cash and propertycontributions of $250 or more must be documented with a writtenacknowledgment from the charity, since a cancelled check is notenough for substantiation purposes. The written acknowledgment mustinclude: (1) the amount of cash or a description of the property; (2)whether the charity provided any goods or services in connection withthe contribution; and (3) a description and estimate of the value ofgoods or services provided.
Charitable gifts ofproperty exceeding $500 are subject to the same substantiation rulesas contributions of property over $250. Additionally, records shouldbe kept showing how and when the property was acquired and youroriginal cost for property. For property contributions exceeding$5,000 in value, the IRS generally also requires that you obtain aqualified appraisal and attach an appraisal summary to your taxreturn.
Be sure to consult a taxprofessional about requirements specific to yoursituation.
Christopher Morse,CPA, MST, is a Senior Tax Manager at Weber, Curtin & Drake, PC,in Traverse City. He has over 12 years of public accountingexperience serving financial institutions, construction,manufacturing and real estate industry clients and individuals.BIZNEWS