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?"
Throw Exception
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 distinct situations, taking deductions without a receipt is as a matter of fact 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 formula
2) The Mileage Method
Our focus here is on option #2 -- because with the Mileage formula your vehicle expense is simply the estimate 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 ,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 holding the receipt), or you can rely on the little known "Per Diem Method" (which requires no receipt).
The Per Diem formula gives you a daily meal reduction 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 ; for San Francisco, it's (as of 9/30/08).
To find the per diem amounts for every state, go to: irs.gov/publications/p1542/ar02.html
Exception #3: The Dollar Rule
Here's other 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 wish a receipt when your business meal or entertainment expense is less than per expense.
Sound too good to be true? Well, there is a "catch", of course: you still must allege a report of the following five facts linked to the deductible event:
1) Who did you eat with or entertain? i.e. The names of the habitancy and the nature of their business connection to you
2) When did the entertainment occur? i.e. The date
3) Where did the entertainment occur? i.e. The name of the cafeteria or other venue
4) Why did you meet? i.e. A report of the business purpose of the meal or event
5) How Much did you spend? i.e. The dollar amount
You should report these five facts in a log. Your daily appointment book or day-timer is the excellent 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 trip situations, regardless of either you eat your meals alone or with business associates. Exception #3 applies to meals and entertainment expenses incurred when you are with person with whom you have an existing or prospective business relationship, regardless of either you are in town or in overnight trip status.
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