The problem with your business expense records

Non-profit organizations are subject to the same substantiation requirements of business expenses as for-profit firms.

The problem with your deductible business expenses for travel, meals and entertainment is that you believe that you can support the tax deduction in an audit. The IRS knows that you can’t. As a result, tax professionals report that they are seeing more of these audits and are often unable to prevail on behalf of their client.

IRS regulations require a concurrent log containing specific information that most taxpayers do not have available. It is not permissible under the law to create these supporting documents later in the event of an audit. Taxpayers are often surprised to learn that the strict IRS-required documentation rules have been tested and upheld in tax court.

As a practical matter few of us have time to separately record details like who we were with and what was the business purpose of our activity each and every time we travel for business. More likely we say “I meet Bob every Monday morning over coffee to review sales of the past week”. Therein lies the problem. It makes sense. It is legitimate and fair business expense and certainly meets the ‘ordinary and necessary’ standard. Yet without a concurrent log, you cannot legally deduct the cost of your travel and coffee meeting.

This post skips the details of the tax requirements but I would be pleased to review them and help devise a personalized audit defense plan for your business.