Business Tax Deductions – How To Withhold Expenses Without Keeping Receipts

Business Tax Deductions – How to Withhold Expenses Without Keeping Receipts

No receipt, no discount, right? In general, yes. The small business bookkeeping motto has been relentlessly cumbersome for decades: “No receipt, no discount.”

My tax clients are quick to remind me of this basic bookkeeping rule. Over the years I’ve heard this countless times: “But I don’t have any receipts. Guess I can’t afford the discount, right?”

What is my response to the “no receipt, no discount” lament? “Not so fast! Where there is a tax rule, there is an exception to the rule.”

In certain cases, the IRS is actually penalized for taking deductions without a receipt. Here are three legal exceptions to the “no take, no discount” rule.

Exception #1: Car expenses

You are allowed to deduct your car expenses to the extent that you use your car for work. If you drive 100% to work, 100% of your car expenses are deductible.

You have two options for determining the expenses for this vehicle:

1) Actual Expenses Method 2) Mileage Method

Our focus here is on option #2 – because with the mileage method, your car’s calculation is simply the number of business miles multiplied by the IRS’ official mileage rate.

For 2014, that rate is 56 cents per mile. In 2014, if you drove 10,000 miles to work, you could report a $5,600 deduction—without having to keep any receipts for gasoline, oil changes, repairs and maintenance, insurance, etc.

You have to document your business mileage via a written log of some sort, but that’s usually much easier than saving all those receipts for actual car expenses.

Exception #2: Meals while traveling

When traveling out of town on an overnight business trip, you can deduct the actual expenses for your meals (by keeping your receipt), or you can count on the “way of life” (which doesn’t require a receipt).

The Per Diem method gives you a daily meal allowance for each day of the trip, depending on which part of the country you’re visiting. For example, the average daily meal in Birmingham, AL is $56; For San Francisco, it’s $71 (as of October 2014).

To find per diem amounts for any state, go to:

http://www.gsa.gov/portal/content/104877

Exception #3: The $75 rule

Here’s another easy way to avoid the hassle of saving receipts – this method includes your business meal and entertainment expenses. Believe it or not, the IRS does not require a receipt when your business meal or entertainment expense is less than $75 per account.

Sound too good to be true? Well, there is a “problem” of course: you must still keep a record of the following five facts related to the deductible event:

1) Who did you eat or enjoy food with? Any people’s names and the nature of their business relationship with you 2) When did the entertainment take place? Which date 3) Where did the fun take place? No name of the restaurant or other place 4) Why did you meet? Any description of the business purpose of the meal or event 5) How much did you spend? Any dollar amount

You must record these five facts on the record. A daily or temporary appointment book is the perfect place to jot it down in less than a minute. After you meet the IRS proof requirements, you can then dispose of the receipt. In the event of an audit, you will be covered.

Two final comments: Exception #2 applies to overnight travel situations, regardless of whether you dine alone or with business partners. Exception #3 applies to meal and entertainment expenses incurred when you are with someone with whom you have a current or prospective business relationship, regardless of whether you are in town or traveling overnight.