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Turbotax 2011Turbotax 2011 5. Turbotax 2011 Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. Turbotax 2011 This chapter discusses the records you need to keep to prove these expenses. Turbotax 2011 If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. Turbotax 2011 You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. Turbotax 2011 These plans are discussed in chapter 6 under Reimbursements . Turbotax 2011 How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. Turbotax 2011 You must be able to prove the elements listed across the top portion of the chart. Turbotax 2011 You prove them by having the information and receipts (where needed) for the expenses listed in the first column. Turbotax 2011 You cannot deduct amounts that you approximate or estimate. Turbotax 2011 You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. Turbotax 2011 You must generally prepare a written record for it to be considered adequate. Turbotax 2011 This is because written evidence is more reliable than oral evidence alone. Turbotax 2011 However, if you prepare a record on a computer, it is considered an adequate record. Turbotax 2011 What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. Turbotax 2011 You should also keep documentary evidence that, together with your record, will support each element of an expense. Turbotax 2011 Documentary evidence. Turbotax 2011 You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Turbotax 2011 Exception. Turbotax 2011 Documentary evidence is not needed if any of the following conditions apply. Turbotax 2011 You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. Turbotax 2011 ( Accountable plans and per diem allowances are discussed in chapter 6. Turbotax 2011 ) Your expense, other than lodging, is less than $75. Turbotax 2011 You have a transportation expense for which a receipt is not readily available. Turbotax 2011 Adequate evidence. Turbotax 2011 Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. Turbotax 2011 For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. Turbotax 2011 The name and location of the hotel. Turbotax 2011 The dates you stayed there. Turbotax 2011 Separate amounts for charges such as lodging, meals, and telephone calls. Turbotax 2011 A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. Turbotax 2011 The name and location of the restaurant. Turbotax 2011 The number of people served. Turbotax 2011 The date and amount of the expense. Turbotax 2011 If a charge is made for items other than food and beverages, the receipt must show that this is the case. Turbotax 2011 Canceled check. Turbotax 2011 A canceled check, together with a bill from the payee, ordinarily establishes the cost. Turbotax 2011 However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. Turbotax 2011 Duplicate information. Turbotax 2011 You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. Turbotax 2011 You do not have to record amounts your employer pays directly for any ticket or other travel item. Turbotax 2011 However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. Turbotax 2011 Timely-kept records. Turbotax 2011 You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. Turbotax 2011 A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. Turbotax 2011 You do not need to write down the elements of every expense on the day of the expense. Turbotax 2011 If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. Turbotax 2011 If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. Turbotax 2011 This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. Turbotax 2011 Proving business purpose. Turbotax 2011 You must generally provide a written statement of the business purpose of an expense. Turbotax 2011 However, the degree of proof varies according to the circumstances in each case. Turbotax 2011 If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. Turbotax 2011 Example. Turbotax 2011 If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. Turbotax 2011 You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. Turbotax 2011 You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. Turbotax 2011 Confidential information. Turbotax 2011 You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. Turbotax 2011 However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. Turbotax 2011 What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. Turbotax 2011 If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Turbotax 2011 Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Turbotax 2011 Documentary evidence can be receipts, paid bills, or similar evidence. Turbotax 2011 If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. Turbotax 2011 For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Turbotax 2011 Invoices of deliveries establish when you used the car for business. Turbotax 2011 Table 5-1. Turbotax 2011 How To Prove Certain Business Expenses IF you have expenses for . Turbotax 2011 . Turbotax 2011 THEN you must keep records that show details of the following elements . Turbotax 2011 . Turbotax 2011 . Turbotax 2011 Amount Time Place or Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. Turbotax 2011 Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Turbotax 2011 Dates you left and returned for each trip and number of days spent on business. Turbotax 2011 Destination or area of your travel (name of city, town, or other designation). Turbotax 2011 Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Turbotax 2011 Relationship: N/A Entertainment Cost of each separate expense. Turbotax 2011 Incidental expenses such as taxis, telephones, etc. Turbotax 2011 , may be totaled on a daily basis. Turbotax 2011 Date of entertainment. Turbotax 2011 (Also see Business Purpose. Turbotax 2011 ) Name and address or location of place of entertainment. Turbotax 2011 Type of entertainment if not otherwise apparent. Turbotax 2011 (Also see Business Purpose. Turbotax 2011 ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Turbotax 2011 For entertainment, the nature of the business discussion or activity. Turbotax 2011 If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Turbotax 2011 Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Turbotax 2011 For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. Turbotax 2011 Gifts Cost of the gift. Turbotax 2011 Date of the gift. Turbotax 2011 Description of the gift. Turbotax 2011 Transportation Cost of each separate expense. Turbotax 2011 For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. Turbotax 2011 Date of the expense. Turbotax 2011 For car expenses, the date of the use of the car. Turbotax 2011 Your business destination. Turbotax 2011 Purpose: Business purpose for the expense. Turbotax 2011 Relationship: N/A Sampling. Turbotax 2011 You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. Turbotax 2011 You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. Turbotax 2011 Example. Turbotax 2011 You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. Turbotax 2011 There is no other business use of the car, but you and your family use the car for personal purposes. Turbotax 2011 You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Turbotax 2011 Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Turbotax 2011 Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. Turbotax 2011 Exceptional circumstances. Turbotax 2011 You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. Turbotax 2011 This applies if all the following are true. Turbotax 2011 You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . Turbotax 2011 You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . Turbotax 2011 You have presented other evidence for the element that is the best proof possible under the circumstances. Turbotax 2011 Destroyed records. Turbotax 2011 If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Turbotax 2011 Reasons beyond your control include fire, flood, and other casualties. Turbotax 2011 Table 5-2. Turbotax 2011 Daily Business Mileage and Expense Log Name: Odometer Readings Expenses Date Destination (City, Town, or Area) Business Purpose Start Stop Miles this trip Type (Gas, oil, tolls, etc. Turbotax 2011 ) Amount Weekly Total Total Year-to-Date Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. Turbotax 2011 Separating expenses. Turbotax 2011 Each separate payment is generally considered a separate expense. Turbotax 2011 For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. Turbotax 2011 You must record them separately in your records. Turbotax 2011 Season or series tickets. Turbotax 2011 If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. Turbotax 2011 To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. Turbotax 2011 You must keep records to show whether you use each ticket as a gift or entertainment. Turbotax 2011 Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. Turbotax 2011 See Entertainment tickets in chapter 2. Turbotax 2011 Combining items. Turbotax 2011 You can make one daily entry in your record for reasonable categories of expenses. Turbotax 2011 Examples are taxi fares, telephone calls, or other incidental travel costs. Turbotax 2011 Meals should be in a separate category. Turbotax 2011 You can include tips for meal-related services with the costs of the meals. Turbotax 2011 Expenses of a similar nature occurring during the course of a single event are considered a single expense. Turbotax 2011 For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. Turbotax 2011 Car expenses. Turbotax 2011 You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Turbotax 2011 Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. Turbotax 2011 Example. Turbotax 2011 You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. Turbotax 2011 You can account for these using a single record of miles driven. Turbotax 2011 Gift expenses. Turbotax 2011 You do not always have to record the name of each recipient of a gift. Turbotax 2011 A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. Turbotax 2011 For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. Turbotax 2011 Allocating total cost. Turbotax 2011 If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. Turbotax 2011 To do so, you must establish the number of persons who participated in the event. Turbotax 2011 An allocation would be needed, for example, if you did not have a business relationship with all of your guests. Turbotax 2011 See Allocating between business and nonbusiness in chapter 2. Turbotax 2011 If your return is examined. Turbotax 2011 If your return is examined, you may have to provide additional information to the IRS. Turbotax 2011 This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. Turbotax 2011 THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. Turbotax 2011 Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. Turbotax 2011 Travel Expenses: Airlines Excess Baggage Bus – Train Cab and Limousine Tips Porter 2. Turbotax 2011 Meals and Lodging: Breakfast Lunch Dinner Hotel and Motel (Detail in Schedule B) 3. Turbotax 2011 Entertainment (Detail in Schedule C) 4. Turbotax 2011 Other Expenses: Postage Telephone & Telegraph Stationery & Printing Stenographer Sample Room Advertising Assistant(s) Trade Shows 5. Turbotax 2011 Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. Turbotax 2011 ) (Detail mileage in Schedule A. Turbotax 2011 ) Gas, oil, lube, wash Repairs, parts Tires, supplies Parking fees, tolls 6. Turbotax 2011 Other (Identify) Total Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. Turbotax 2011 00 or more. Turbotax 2011 Schedule A – Car Mileage: End Start Total Business Mileage Schedule B – Lodging Hotel or Motel Name City Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship WEEKLY REIMBURSEMENTS: Travel and transportation expenses Other reimbursements TOTAL How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Turbotax 2011 Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. Turbotax 2011 A return filed early is considered filed on the due date. Turbotax 2011 For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. Turbotax 2011 You must keep records of the business use of your car for each year of the recovery period. Turbotax 2011 See More-than-50%-use test in chapter 4 under Depreciation Deduction. Turbotax 2011 Reimbursed for expenses. Turbotax 2011 Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. Turbotax 2011 However, you may have to prove your expenses if any of the following conditions apply. Turbotax 2011 You claim deductions for expenses that are more than reimbursements. Turbotax 2011 Your expenses are reimbursed under a nonaccountable plan. Turbotax 2011 Your employer does not use adequate accounting procedures to verify expense accounts. Turbotax 2011 You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. Turbotax 2011 Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. Turbotax 2011 Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. Turbotax 2011 Prev Up Next Home More Online Publications
Cell Phones and Wireless Communication
Cell Phones and Wireless Communication
Before you sign a contract and choose a plan and a company that meets your needs, you should ask these types of questions:
Where can you make and receive calls? Most providers now offer a choice of local, regional, or national plans. A local plan offers low-cost options if most of your calls are near home. Regional plans generally offer a larger geographic area - sometimes several states. If you call outside the area covered by these plans, you will pay long distance and roaming charges in addition to the airtime used. National plans are the most expensive, but they let you use your phone anywhere in the country for a single per-minute price.
How frequently will you use the phone? If you just want a phone for emergencies, an economy plan with a few minutes a month may be all you need. On the other hand, if you are going to be a heavy user, a plan with several free hours and the lowest airtime charge is a wiser choice. If you plan to use texting, pick a plan that will meet your needs and avoid surprises on your billing. Most services allow you to upgrade a plan without an added one-time charge.
Is a family plan option available? Instead of individual cell phone plans for each member of the family, you can share one cellular service plan and a pool of monthly usage minutes among several phones. The cost of the additional numbers per month is usually less than if you purchased individual accounts.
Is there a trial period? Many people experience "dead spots" where a cell phone doesn't work. A trial period lets you test your service and try the features of the phone without incurring a termination fee.
Know your options. Make sure you are only buying the options or features you really need. It is always easier to upgrade a plan later if you feel you need another feature.
What happens if you want to cancel your service? Most providers have a penalty. This is a concern if you have to move out of the area covered by your plan.
Smart phones are like miniature computers; they provide basic phone functions, along with advanced features, including browsing the Internet, accessing e-mail, interacting on online social networks, listening to music, watching videos, uploading pictures, and managing your calendar. They also allow use of a QWERTY keyboard to facilitate texting and e-mailing. (The keys are arranged the same way they would be on your computer keyboard.)
When shopping for a smart phone, consider these tips:
- Consider the shape and size of the phone.
- Make sure you can easily use the keypad to make calls or send messages.
- Do you need to access the Internet with your phone? If so, ask whether a data plan is required and how much it costs; compare options carefully. Data plans govern use and costs associated with mobile access for e-mail, text messaging, web browsing, social networking, and other applications.
- Take advantage of special pricing and promotions.
- Learn the return and cancellation policies.
- Be wary of buying phone insurance, which may sound tempting, but consumer groups generally advise against it.
If there is a particular phone model you are interested in buying, investigate which service providers actually carry the phone. If your service provider carries the phone, they may require you to renew or extend your current contract; you may also be required to upgrade the service plan you have in order to access all of the phone’s features. Some phone models are available exclusively with only one service provider. This may require you to terminate a contract with your current provider and start a new contractual agreement with a new provider. Under the Federal Communication Commission’s (FCC’s) local number portability rules, so long as you remain in the same geographic area, you can take your phone number with you when you move from one service provider to a different one.
Apps for Your Smartphone
“Apps”, short for applications, are tools that help you accomplish tasks or find information when you are on the go. Apps are designed to work on smart phones and may be downloaded or accessed using your phone’s web browser. Some apps are designed for specific platforms (Android, Blackberry, or iPhone), so make sure that you purchase apps that are compatible with your phone’s software requirements. While some apps are free, many of them do charge a small fee. Before you click “download”, keep in mind that the cost of your purchases are automatically deducted from your bank account or charged to your credit card or phone bill. Keep track of the amount of money that you spent on apps, to avoid shock when you receive your bill.
Visit the Apps gallery on usa.gov to download free apps from the government. Look for some of the consumer apps for product recalls, fuel economy, food safety, nutrition, and health information.
Privacy and Safety Concerns
Since smart phones are like miniature computers, many of the same privacy and safety concerns apply; however, unlike computers, these devices do not have anti-virus software to protect your phone from malware attacks, spyware, or text message spam. Therefore, you should take precautions with your phone, including:
- Protect your passwords for websites you visit from your mobile phone, particularly financial institutions.
- Refrain from posting your mobile phone number or email address publicly online.
- Many mobile phones come with an email address that includes your mobile phone number in the address. Contact your service provider to have this email address changed.
- Delete texts or emails from people that you don’t know. Don’t click any links in these messages.
- Be careful about clicking on ads, as they can contain viruses.
- Be careful about unlocking your cell phone from the manufacturer or service provider; this makes the phone more vulnerable to attack from malware.
- Turn off your Bluetooth when not in use. They can be used by hackers to compromise your phone.
- Encrypt passwords and other sensitive data saved on your cell phone.
For more information on how to protect yourself from these concerns, read more about online privacy.
If you want cell phone service only for emergencies or aren't sure how much you will actually use a cell phone once you get it, you may want to consider a prepaid cell phone before you commit to a long-term wireless contract. With a prepaid cell phone, there is no contract to sign and no monthly bill to worry about. You will know exactly how much you spend. The down side of prepaid plans is that you pay more per minute, and if you don't use the phone for an extended period of time, you could lose the money in your account.
Disposing of Your Old Cell Phone
Even after you get a new mobile phone you may be wondering what to do with your old phone and charger. There are safe ways to dispose of your cell phone that can even be helpful to others and not hurt the environment. Before you dispose of it, make sure to clean the phone to protect your privacy:
- Remove the subscriber identity module (SIM) card from the phone.
- Delete the contacts in your phone book, text messages, voicemails, saved photos, and web search history.
- Clear out your call and text history (both calls and texts received and made).
After you have taken these steps, you can now determine how to dispose of the phone. The Environmental Protection Agency (EPA) recommends that you not throw out electronics with your other trash, because they contain chemicals that can be harmful to the environment. It is recommended that you:
- Recycle it. Many wireless service providers will accept your old phone at their retail stores. Similarly, you can send the phone and accessories to the phone manufacturer.
- Donate it to an organization that can use it for charitable purposes.
- Resell it.