Tax Topic

Substantiation Requirements - Receipts and Mileage logs

We are often asked if it's okay to claim a deduction without a receipt. Whether you are talking about charitable contributions, property taxes, mortgage interest, gambling losses, business expenses, rental expenses, auto expenses or mileage, the IRS almost always requires that you substantiate your deduction.

Most of the time, this means a receipt for the expense incurred (and a notation on the receipt as to the business purpose if not obvious). A cancelled check or a VISA statement isn't the same as a receipt, because they often do not provide enough information about the type of expense. The IRS can be reasonable. If you claim, for example, $5,000 of business expenses but kept receipts for only $2,000, you can expect the IRS to disallow the other $3,000. If, however, you claim $5,000 and have receipts for $4,500, you may be okay so long as the unsubstantiated amounts are reasonable for your situation.

Vehicle expenses must be substantiated by a mileage log. The log doesn't necessarily need to read odometer to odometer. It could be kept as, "Training seminar in Tacoma, 48 miles rt" as an example. Regardless, it must provide enough information to show the date, miles, location, and business purpose. If you do not keep a log to track total, business, personal, and commuting miles (even though personal & commuting miles are not deductible for anyone); the IRS will likely disallow your auto expenses under audit.

Simply put, if you are audited by the IRS and don't have substantiation for your deductions; the IRS can, and most often will, disallow the deduction under audit. If this happens, your overall income will increase and therefore your income tax liability will likely increase. And to make matters worse, penalties and interest will most likely be assessed in addition to the tax, because the tax increase is now long overdue.

The substantiation rules differ depending on the type of deduction. Following are links with a lot of detail:

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