Everyone in business must keep records. Among other things, good records will help a business prepare the business tax returns, and will support items reported on tax returns. Taxpayers also must keep their business records available for inspection by the IRS.
In order to claim any deduction, a business owner, like any taxpayer, must prove two things:
…what expenses were for and that the expense was in fact paid or incurred. Supporting documents may include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. The documents should show the amount paid and the reason for the expense. Businesses must keep their records as long as needed to qualify under the Tax Code. Generally, this means until the period of limitations for auditing the return expires.
There are special record keeping requirements and strict documentation rules for certain expenses.
These expenses include:
- expenses for travel away from home (including meals and lodging while traveling),
- meal and entertainment expenses,
- business gifts, and
- cars and other means of transportation.
For these expenses, taxpayers must keep receipts and must also substantiate each individual expense as to:
(1) the amount,
(2) time and place, and
(3) business purpose.
For entertainment and gift expenses, taxpayers must also provide the business relationship of the person(s) being entertained or receiving a gift.
For vehicle expenses, taxpayers must keep a mileage log.
Businesses that give reimbursements and allowances to their employees for employment-related travel and entertainment expenses must generally treat these amounts as income to the employees. However, there is no income inclusion if: (1) the employee is required to account for the expenses to the employer; (2) the employee does not deduct the expenses; and (3) the total expenses equal the total reimbursements and allowances.
Accounting for expenses means giving the employer documentary evidence and an account book or statement to verify each expense’s amount, time, place and business purpose. An employee is treated as having accounted for expenses if the employer provided a fixed allowance, and the employee verifies the time, place, and business purpose of each expense. A fixed allowance includes the standard mileage rate for cars and the federal per diem rate for travel away from home.
A reimbursement arrangement is considered an accountable plan if it meets the following three requirements:
- It provides advances, allowances or reimbursements for business expenses paid or incurred by an employee;
- Each business expense must be substantiated to the employer within a reasonable period of time; and
- The employee must return any excess reimbursement within a reasonable period of time.
- If the arrangement is an accountable plan, the reimbursements are excluded from the employee’s wages and exempt from employment taxes. Any excess reimbursement that is not returned within a reasonable period is treated as paid under a non-accountable plan.
from My Real Estate Investor EXPERT CPA
J. Michael Grinnan, CPA. CITP
Certified Public Accountant
9900 Corporate Campus Drive, Suite 3000
Louisville, KY 40223
Message from Mike Butler:
“Mike Grinnan has been my CPA for going on 15 years or more. Why? Try this on for size. Just a few years back, I had wrapped and completed a set of tax returns for my property management company and a couple of weeks later, Mike called me and wanted me to return to his office to sign another set of tax returns. At first I was a aggravated because I just completed a set two weeks ago. Then he calmly tells me to not get all bent out of shape as he found another $15,000 for me. Long story short, this guy, on his own, without any prompting on my part, took it upon himself to dig into my previously filed tax returns and he did some kind of averaging thing and BINGO! Mike got me another big fat check. Does your CPA do this for you?
Mike Grinnan is also a real estate investor himself. One more thing. He works with the same IRS that works in your town. He’s a walking encyclopedia of information and he speaks our language.”
J. Michael Grinnan CPA
Mike has a strong background in computers and taxes and concentrates heavily in taxation and business planning. He has successfully represented many clients in Federal and State tax audits, has obtained sales tax exemptions and property tax deductions for qualifying clients, and has been involved with the mergers and acquisitions of many businesses. He has presented seminars on business planning and tax related subjects to various industries and professional groups.
Mike recently fulfilled all of the requirements to obtain the prestigious “Certified Information Technology Professional” (CITP) designation from the AICPA. The CITP Credential distinguishes CPAs with expert technology proficiencies, certifies their credibility and establishes them as a premier provider of IT services.
Mike is an investor himself and has many real estate investor clients all across America. (remember, the IRS covers all 50 States). Mike has a strong background in computer operations and taxes, and concentrates heavily in taxation and business planning.
Mike Grinnan has successfully represented many clients in Federal and State tax audits, has obtained sales tax exemptions and property tax deductions for qualifying clients, and has been involved with the mergers and acquisitions of many businesses. He presents seminars and workshops on business planning and tax related subjects to various industries and professional groups.
Mike likes a team approach in working with other professionals including attorneys, bankers, stockbrokers and insurance agents to provide quality service to all of his clients.
A graduate of Eastern Kentucky University with a B.B.A. in Accounting, 1981, Mike is licensed to practice as a CPA in Kentucky and Indiana. He is also a graduate of Leadership Southern Indiana.
Professional and Community Activities
Mike serves on the Information Technology Committee of PKF North American Network, an association of legally independent firms. Professional memberships include the American Institute of Certified Public Accountants and the Kentucky Society of Certified Public Accountants. He has been active in a number of civic and community organizations.
The Only Complete System for Real Estate Investors using QuickBooks Pro™