Seward Location: 402-643-4557 | Osceola Location: 402-747-3381 ryan@gbecpa.com

Tax Tips: Business and Farm Expenses

Finances, Income Tax, Itemizing

GBE Business and Farm Clients,

At tax time we like to see receipts for LARGE deduction items including vehicles, equipment, or any assets financed through a loan for your business or farm.

We rarely request any other receipts; for the sake of time and efficiency we generally focus on your summarized numbers. But we feel it is important for you to know how to substantiate your business write-offs in the case of an IRS audit.

Mileage

This issue has been taken to Tax Court many times and the IRS has been successful in disallowing travel deductions which do not have complete and proper substantiation. The IRS requires taxpayers to retain specific documentation to substantiate the business use of a personal vehicle under Code Section 274(d)(4). A deduction is not allowed unless the taxpayer properly documents:

  1. The amount of the expense (the number of miles driven)
  2. The time and place of travel
  3. The business purpose of the travel

We have also found odometer readings which correspond to the mileage listed on oil change invoices to be helpful in providing substantiation support.

Business and Farm Deductions
The chart below, from IRS Publication 463, describes how to prove certain business expenses by category:

Table 5-1. How To Prove Certain Business Expenses

IF you have expenses for . . THEN you must keep records that show details of the following elements . . .
Amount Time Place or
Description		 Business Purpose
Business Relationship
Travel Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Dates you left and returned for each trip and number of days spent on business. Destination or area of your travel (name of city, town, or other designation). Purpose: Business purpose for the expense or the business benefit gained or expected to be gained.
Entertainment NO LONGER DEDUCTIBLE under the Tax Cuts and Jobs Act. This includes tickets to sporting events, golf outings, and country club memberships to name a few. N/A N/A N/A
Gifts Cost of the gift. Date of the gift. Description of the gift.
Transportation Cost of each separate expense. For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. Date of the expense. For car expenses, the date of the use of the car. Your business destination. Purpose: Business purpose for the expense.

In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct including advertising, dues, training costs, internet, phone, legal and professional fees, tax preparation fees, supplies, rent, interest, taxes, licenses, utilities and more. You must be able to document the amount, time, place, and business purpose of each of these items in order to prove the deduction. So remember to save those receipts!

For more information see Publication 535 or contact your GBE advisor.