Tracking Your “Outside of the Office” Expenses
There are four major areas that you should always keep accurate tracking of your outside expenses, which include: travel, entertainment, gifts, and transportation. Below is a synopsis from Publication 463 of the Internal Revenue Service.
Travel: All of your travel costs should be kept separated for travel, lodging, and meals. Travel costs include: car rental, airline, fuel, taxis, tips, etc. However they should not be categorized together as one large amount but separated out into separate subcategories. Part of the key in keeping accurate expenses is the date/time that you left for your trip, as well as the location to/from, as well as any other destinations in between. Finally, what was the purpose of the trip, which is essential in determining whether or not it was considered for business or personal purposes.
Entertainment: Regarding the cost of entertainment, this is only available at a 50% tax deduction, however when tracking for accounting purposes, it is charged at a 100% expense. As with travel, entertainment expenses must be more detailed to include not only the date, amount, location, what the expense was for, but also the purpose of the expense, i.e. you were having a meal with a potential client, as well a what type of business was discussed. Note that for business meals, the business owner or employee must have been present.
Gifts: With gifts, the cost of the gift, date of the gift, the gift’s description, the recipient’s information, as well as how the recipient relates to the purpose of doing business.
Transportation: Transportation constitutes the cost of the vehicle and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. You should be prepared to utilize the general day-to-day purposes that the vehicle was used for business, i.e. deliveries, meeting with clients, etc. Going back and forth between your office and home is not considered a business deduction, so please also keep that in mind.
An example of the business use of transportation is as follows per the IRS: “You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.”
Destroyed Records: If your records were destroyed beyond your control through casualty, i.e. fire, flood, vandalism, show proof of your deductions by reconstructing your records or expenses to the best of your abilities.
Dwayne J. Briscoe, Owner