How to Make the IRS Happy

While not a tax expert I have been told by an IRS examiner that my business records were some of the best she had seen.  It’s not easy to put yourself in the receipt collection and data entry mode everyday but if you try to do it just before April 15^th or when the IRS sends you a letter telling you it’s time to come down and talk to them there will be much more stress.

I keep every receipt that I can get my hands on, I automatically say “yes” if asked whether I want a receipt and I admit to getting and holding onto many receipts that are for things that are not taxable expenses, but my theory is that if you have all of them you can sort out which expenses are business related and which are not when you prepare your taxes.

The IRS suggested to me that I write “Business” on the top of my business-related meal receipts when I accept them, which was a great idea because it’s much harder for me to remember that I had a business meeting on May 5^th, for example, when I prepare my taxes several months later.  I also have dual tracking of meal expenses since my mileage log details the purpose of my trips.

You may decide after looking at my methods that they are a bit “over-the-top” but it’s difficult to reconstitute things like logs after the fact.  Appraisers can reconstruct or reconstitute a mileage log if they have to because digital appraisal files usually have dated photos in them.  So appraisers have evidence, because they have to meet regulatory requirements, that detail that they went to inspect a specific commercial property or a specific SFR home or homes on May 6^th and they know exactly where the property or properties were.

The following image provides an example of the Excel based auto Log that I use.  It’s not all that original, in fact it’s a modified version of a commonly used online log.  It does however meet the basic requirements as laid out by the IRS for an auto log.

If you are really going to keep track of when and where you have gone this Excel spreadsheet is ideal because it records; date, time, description, purpose and start / finish mileage it is easy at the end of the year to summarize the data.  You know exactly how many business miles you have driven and you have met the IRS requirements. 

If you don’t use an Excel spreadsheet like this and you catch an audit you will be scrambling to recreate this information and you may find that your “guestimate” was way off.

I put trips for meals in another color, like blue, that way I can relate my meal expenses to the date and time that I traveled.  Thus my mileage log provides additional support for my reported meal expenses.  If on May 5^th I met John Doe at the Waffle Castle I have the date, time, description, purpose, mileage, etc. and the cost of the meal is listed in the meal receipt or restaurant Excel sheet.  Again I have provided an example of what my meal / restaurant spreadsheet looks like.  I list every meal receipt in the first pass, which I know is overkill, but I like to know what I’m spending and where its being spent.

These two spreadsheets effectively deal with auto mileage and meals and entertainment expense items.  They are often the focus of an IRS probe but they are not the only place that the IRS looks.

Using Excel spreadsheets to track other parts of my business activity works for me, and the spreadsheets make filing my IRS taxes easier to, but it takes a certain dedication to get the data recorded, and I realize that these methods are not going to work for everyone.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/General-Appraisal-Articles/Business-Operation//4606-Suggestions-for-Strengthening-Your-Appraisal-Filing.html