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Keeping records of business expenses for deduction purposes

One of our recurring themes in this blog is the importance of record keeping for tax compliance.

After all, the quality of your records - or lack thereof - can be crucial in many different types of tax controversies. In this post, we will provide a reminder of why these records are so important.

In a way, this is a follow-up to a post we did last summer on the home-office deduction. As we noted in our July 24 post, in order to claim that deduction properly - and help steer clear of a tax audit - you need to have good records to track expenses related to the office.

A recent decision by the Tax Court is the most recent reminder of the need for good records. In a case called Garza v. Commissioner, the Tax Court held that employees seeking tax deductions for business travel cannot rely on general estimates of their expenses.

There is no dispute that meals and lodging when travelling for business are legitimate business deductions. You should by all means make use of those deductions wherever possible.

But in order to do this, you need to track the expenses in the form of a logbook or some other sufficiently-detailed record. To be sure, this is a bit of a hassle. The Tax Court has made it clear, however, that estimating expenses after the fact is not the same as keeping a detailed log in real time.

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