The IRS generally requires you to substantiate your business deductions. If the IRS audits your tax return, they can examine your books and records to determine if you claimed the correct deductions. If you have incomplete or missing records, your business may lose out on valuable deductions. Here are two recent U.S. Tax Court cases that help illustrate the rules for documenting deductions.
Case 1: Insufficient records
In the first case, the court found that a taxpayer with a consulting business provided no specific facts and no documentation to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question. His only allegation concerning the advertising expenses were that they related to “horses purchased for business use and the losses”; he attached documents purporting to establish the horses' pedigree.