Take advantage of the IRS $75 rule
The $75 rule allows you to deduct expenses for up to $75 without a receipt. However, this rule only applies to certain deductions. The problem is that people often think it applies to all their deductions. Failure to keep required receipts can result in a considerable loss of deductions, penalties, and interest. Lack of records can lead to a 20% IRS negligence penalty, depending on the amount of missing documentation.
The rule can be confusing. You would need a $5 receipt from Staples but wouldn’t need a $70 receipt for fuel.
The $75 rule can be used for business travel expenses, vehicle expenses, and gifts that cost less than $75. However, the limit on deductions for business gifts is $25, so the practical limit is $25.
The $75 rule allows you to avoid having a receipt for some expenses. However, it is critical to properly document your expenses. To document a $60 meal during a deductible business trip with or without a receipt, you need to prove the name and location of the restaurant, the amount spent, and the date of the meal.
There is an exception to the $75 rule for business travel. You always need a receipt for lodging. So even if you can find an incredibly cheap rate, a receipt is required.
Your credit card and bank statements do not give you a receipt. However, they do provide sufficient proof of expenses for tax purposes. You need to have the receipt for proof of your purchase and the credit card statement or canceled check or proof of payment to substantiate the expenditure if the expense doesn’t qualify for the $75 rule.
Don’t think you can just make up expensive business meals for breakfast, lunch, and dinner on a business trip for several days. An auditor can ask you where you got the money to pay for the meals. They can ask if you made an ATM withdrawal or how you obtained the cash.
Even though you don’t need a receipt for a $60 meal while traveling, your documentation may be easier with a receipt.
While on a business trip, you should keep a daily business mileage and expense log for document mentation of the expenses that are less than $75. IRS Publication 463 has an example of the log you can use.
Although receipts may not be required, they provide better evidence in the event of an audit.
You can find additional information about the $75 rule in IRS Publication 463 Travel, Gift, and Car Expenses.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org.