Substantiation of Business Expenses

Author: Jennifer Kowal

Under the federal tax law, a trade or business expense must be substantiated to be deductible under I.R.C. section 162. “Substantiation” of a business deduction requires proof of the amount of the payment and evidence establishing the character of the expense. An unsubstantiated business deduction may result in interest and penalties, in addition to denial of the deduction. Stricter substantiation requirements apply to travel expenses, entertainment expenses, and business gifts than for most other expenses.

Publication Date: November 2022

Designed For
None

Topics Covered

• Rules allowing deduction of business expenses, and intersection with capitalization rules
• Definition of "substantiation"
• Examples of acceptable proof of payment
• When and how the taxpayer is required to document the character of the expense
• Special requirements that may apply to employee business expenses
• Common circumstances in which taxpayers may have more difficulty substantiating expenses

Learning Objectives

• Recognize how to describe substantiation
• Identify examples of acceptable proof of payment
• Recognize when and how the taxpayer is required to document the character of the expense
• Identify special requirements that may apply to employee business expenses
• Recognize how to discuss common circumstances in which taxpayers may have more difficulty substantiating expenses
• Identify the IRC Section that a trade or business expense must be substantiated to be deductible under, under Federal tax law
• Identify the method that business expenses are deducted when all events have occurred that fix the fact of liability, and the amount of the liability can be determined with reasonable accuracy
• Identify the percentage a taxpayer may deduct of an otherwise allowable meal expense if it meets certain requirements under Regs. Sec. 1.274-12(a)(1)

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
None

Advance Preparation
None