J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Specific Substantiation Requirements for Certain Expenses

The law requires businesses to maintain books and records, and to provide special substantiation for certain deductions. There is a negligence penalty that can be imposed for 20% of an underpayment resulting from the failure to keep adequate books and records or to substantiate items properly.

Travel and Entertainment Expenses

The tax law imposes special substantiation requirements for claiming travel and entertainment expenses. If you fail to satisfy these requirements, your deduction for these business expenses may be disallowed. There are 2 types of records you need in order to claim deductions for your travel and entertainment expenses: written substantiation in a diary, log book, or other notation system containing certain specific information, and documentary evidence (receipts, canceled checks, or bills) to prove the amount of the expense. The IRS now accepts certain electronic or faxed information to be treated as documentary evidence (e.g., a faxed statement attesting to a “ticketless” airline ticket is considered documentary evidence). Smartphones and other mobile devices may also be used for written substantiation in lieu of a logbook. You may even be able to use software for your iPhone or Android, such as Pocket Quicken or Quicken Online Mobile (an iPhone app), to easily track travel and entertainment costs and transfer data to your PC. There are other apps, such as ProOnGo, that can be used to keep records ...