Business Tax Deductions: How to Deduct Expenses Without Keeping Receipts

By:Wayne M Davies

No receipt, no deduction, right? Generally speaking, yes. The mantra of small business bookkeeping has been relentlessly burdensome for decades: "No Receipt, No Deduction."

My own tax clients are quick to remind me of this basic recordkeeping rule. Over the years I've heard this countless times: "But I don't have any receipts. I guess I can't take the deduction, right?"

What's my response to the "No Receipt, No Deduction" lament? "Not so fast! Wherever there's a tax rule, there's an exception to the rule."

In certain situations, taking deductions without a receipt is actually sanctioned by the IRS. Here are three legal exceptions to the "No Receipt, No Deduction" rule.

EXCEPTION #1: Vehicle Expense You are allowed to deduct your vehicle expenses to the extent that you used your vehicle for business. If you drove your car 100% for business, then 100% of your vehicle expenses are deductible.

And you have two options for determining those vehicle expenses: 1) The Actual Expense Method 2) The Mileage Method

Our focus here is on Option #2 -- because with the Mileage Method your vehicle expense is simply the number of business miles times the official IRS mileage rate.

For 2009, this rate is 55 cents per mile. In 2009, if you drove your vehicle 10,000 miles for business, you can report a deduction of $5,500 -- without having to keep any receipts for gasoline, oil changes, repairs and maintenance, insurance, etc.

You do have to document your business mileage via a written log of some sort, but this is usually much easier than saving all those receipts for actual vehicle expenses.

EXCEPTION #2: Meals While Traveling When traveling out-of-town on an overnight business trip, you can deduct the actual expense of your meals (by keeping the receipt), or you can rely on the little known "Per Diem Method" (which requires no receipt).

The Per Diem Method gives you a daily meal allowance for each day of the trip, depending on what part of the country you visit. For example, the per diem meal rate for Birmingham, AL is $44; for San Francisco, it's $64 (as of 9/30/08).

To find the per diem amounts for every state, go to: http://www.irs.gov/publications/p1542/ar02.html

EXCEPTION #3: The $75 Dollar Rule Here's another easy way to avoid the hassle of saving receipts -- this one involves 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 expense.

Sound too good to be true? Well, there is a "catch", of course: you still must maintain a record of the following five facts related to the deductible event:

1) WHO did you eat with or entertain? i.e. the names of the people and the nature of their business relationship to you

2) WHEN did the entertainment occur? i.e. the date

3) WHERE did the entertainment occur? i.e. the name of the restaurant or other venue

4) WHY did you meet? i.e. a description of the business purpose of the meal or event

5) HOW MUCH did you spend? i.e. the dollar amount

You should record these five facts in a log. Your daily appointment book or day-timer is the perfect place to jot this down in less than a minute. Having met the IRS substantiation requirements, you can then throw away the receipt. In the event of an audit, you'll be covered.

Two final comments: Exception #2 applies to overnight travel situations, regardless of whether you eat your meals alone or with business associates. Exception #3 applies to meals and entertainment expenses incurred when you are with someone with whom you have an existing or prospective business relationship, regardless of whether you are in town or in overnight travel status.

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Wayne M. Davies is author of 3 ebooks on small business tax reduction strategies. For a free copy of his Special Report "How To Instantly Double Your Deductions", visit http://www.YouSaveOnTaxes.com .

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Lower Tax Bills And Bookkeeping For Small Business

Tax authorities are often relaxed about the need for small business to prepare and produce formal accounting records. Often the requirement is simply that each business retains sufficient financial records to support the accounts submitted.

Such advice from tax authorities places a burden upon small business in that the vast majority are honest hard working people who are meticulous about keeping accounting records of sales made during the financial year. Unfortunately many small businesses are not so meticulous about keeping financial records of business expenses in their accounts.

A typical taxi driver may for instance keep a diary and record the daily receipts from his fares. If those recorded receipts are accurate then the total sales turnover for the year will show the correct total. The same may not be true of expenses and the accounts thereby overstated.

The total business expenses of the taxi driver would mainly include the fuel receipts plus the other running costs of the business. Typically a receipt for fuel will be obtained and kept in a file or shoe box. Some may get mislaid and lost and be missing from the final accounts preparation.

Other receipts for miscellaneous items may not even be retained as forgotten, lost or not thought of at the time of purchase. Examples may be purchase of the diary in which sales records are kept, business cards, other stationery, and cash payments for a whole variety of miscellaneous items.

The same practise is also often applicable to not just taxi drivers but many small businesses. A small business owner may visit a supermarket for groceries and also buy an item of stationery for business use the cost of which is lost when the grocery receipt is discarded. If close attention is paid then the stationery item could have been obtained on a separate receipt and the cost of the journey to purchase it also included in the business expenses.

The stationery item is just one example which could be multiplied hundreds of times with hundreds of different items during the financial year. While each item missed and unrecorded may not be significant the total could well be sufficient to significantly reduce the year end tax burden by lowering the net taxable accounting profit.

Having retained a separate receipt for everything it is useful if the receipts are filed and the bookkeeping system employed updated at least once a month and preferably each week. By updating the accounting records on a regular basis more expenses will be recorded as the memory will remember recent expenses more clearly and accurately.

Another useful method to ensure all business expenses are maximised is to keep a daily diary of all expenses incurred. Use the entries in the diary when updating the bookkeeping records to ensure nothing has been missed in the accounts.

The essential message is to be meticulous about keeping receipts for everything, no matter how small, and recording both income and expenditure on a regular basis so that items are not lost or forgotten and included in the bookkeeping records. By also keeping a diary of financial records even if a receipt has been mislaid the amount should still be included in the accounts. It could be disallowed later if the tax records are enquired into but that is a matter of negotiation with the tax authority from a standpoint where the financial records are correct.

In addition all small business should take some time to review all potential expenditure which can be claimed under the tax rules. Many valid expense items can be missed having been dismissed as ordinary expenses which may be business related and therefore claimable in the financial accounts.

Terry Cartwright, accountant and CEO at DIY Accounting, designs accounting software http://www.diyaccounting.co.uk/smallbusinessaccounting.htm on excel spreadsheets providing complete single and double entry bookkeeping systems http://www.diyaccounting.co.uk/bookkeeping.htm

Article Source: http://www.ArticleBiz.com

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