What Can I Deduct?
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.
Deductible Business Expenses:
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. (Examples include business use of your home or car.)
What Records Should I Keep?
You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.
Documentary evidence. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. This evidence should show the amount, date, place, and essential character of the expense.
|IF you have expenses for||THEN you must keep records that show details of the following elements|
|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||Cost of each separate expense. Incidental expenses such as taxis, telephones, etc., may be totaled on a daily basis.||Date of entertainment. (Also see Business Purpose.)||Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent. (Also see Business Purpose.)||Purpose: Business purpose for the expense or the business benefit gained or expected to be gained.
For entertainment, the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity.Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you.
For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.
|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.
You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date.
IRS Publications for Reference: