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 drive 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:
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.
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 YouSaveOnTaxes.com.