CPA trainer extraordinaire, Jack Surgent of Surgent-McCoy CPE, LLC, is fond of saying, “In taxes, form trumps substance.” What Jack means is that you need documentation if you intend to take a deduction. If you don’t, the IRS will levy penalties against the taxpayer AND tax preparer. The penalties can be steep.
Most deductions require a receipt only to prove the deduction. However, when deducting auto expenses and meals and/or entertainment, you need more. The IRS will disallow a deduction based solely on a receipt.
When you keep records of vehicle miles for business, you also need to state where you went, whom you saw, and the purpose of the trip. For meals and entertainment, you need to include on the receipt, who you were with and the purpose of the business meal or entertainment event.
The rules can get tricky when deducting vehicle expenses, travel, meals, and entertainment. It is a wise investment to consult your friendly accountant to avoid nasty surprises in an audit. Also, don’t give your friendly accountant the evil eye when he requests you keep documents in the fashion listed above. He is working to protect you and keep his own career. The IRS has no problem penalizing and barring tax preparers that flaunt the rules.