Caution: For tax years beginning after August 17, 2006 (2007 for most individuals), no deduction is allowed unless the taxpayer has either (1) bank records (for example, a cancelled check or account statement) or (2) written acknowledgment from the charity documenting the contribution’s amount and date. [IRC $170(f)(17)]. This means that donors who give cash will need to get written acknowledgement for the charity to claim a deduction. Using a check for small donations, rather than cash, may be preferable.

$250 or more. Charitable contributions of $250 or more in any one day to any one organization must have written substantiation from the organization. A canceled check is not sufficient to support the deduction [IRC $170(f)(8)]. The acknowledgement letter must be received the earlier of the date the tax return is filed for the year of the contribution or the due date for filing, including extensions.

Noncash Donations-Substantiation Requirements

General recordkeeping requirements for noncash contributions:

1. Name of charitable organization.
2. Date and location of contribution.
3. Reasonably detailed description of contributed property.
4. Fair market value and method of valuing the property.
5. Cost or other basis of the property if FMV must be reduced.

Specific requirements:

• Less than $250. A receipt is not required where it is impractical to get one. For example, when property is left at a charity’s unattended dropsite.
• $250 to $500. Written acknowledgment from the charitable organization is required. The acknowledgment must contain the name and address of the organization, date and location of the contribution, and a description of the property. It must also state whether any goods or services were provided to the donor in return for the contributions and the FMV of such goods or services.
• $501 to $5,000. Same records required as the $250 to $500 category. In addition, the taxpayer’s records must show how the property was acquired, the date acquired and the adjusted basis of the property. If the taxpayer is unable to provide the basis of the property or the date of acquisition, an explanation should be attached to the tax return.
• More than $5,000. Same requirements as the $501 to $5,000 category. Most contributions over $5,000 require a written appraisal.

The expense of providing entertainment to a client, customer or employee can qualify as an ordinary and necessary business expense. Entertainment activities can include the cost of meals (food, beverage, tax, tip). Entertainment can be provided at facilities such as nightclubs, social clubs, sports facilities or theaters, or on hunting, fishing, vacation and similar trips.

To qualify for a deduction, the entertainment expenses must be directly related to or associated with the active conduct of a trade or business, or for the production or collection of income.

Directly related. The taxpayer must show that the main purpose of the event was business, engage in business with a person or persons during a meal or entertainment activity and have more than a general expectation of receiving income or some other specific business benefit in the future.
Associated with. The taxpayer provides entertainment or a meal directly before or after a substantial business discussion. The taxpayer must actively engage in a meeting, discussion or other business transaction to obtain income or some other specific business benefit. It is not necessary that the taxpayer devote more time to business than to entertainment.

Note: Meals with business associates and coworkers are generally not deductible unless that taxpayer can establish a clear business purpose.

Lavish or extravagant. Expenses are not allowed for entertainment that is lavish or extravagant. Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. However, the expenses must be reasonable considering the fact and circumstances.

Taxpayers must be prepared to substantiate auto deduction with adequate records or sufficient evidence, either written or oral.

Taxpayers should be able to substantiate:

1. The amount of each expenditure for the vehicle, including purchase price, vehicle improvements, lease payments, lease payments, repairs and maintenance, gas and other expenses.
2. The total mileage on the vehicle each year and breakdown of the business, personal and commuting miles.
3. The date of each expense or use, and the business or investment reason for each expense or use of the vehicle.

Records should be maintained in an account book, diary, log, trip sheet or similar record near the time of usage [Brown, TC Summary Opinion 2005-155(2005)]. Without a written record of business or investment mileage, a taxpayer will have to convince an IRS agent through oral testimony alone. Other circumstantial evidence will be considered. For example, a taxpayer’s oral or written statement, statements from employers and customers and invoices that required use of the taxpayer’s car for ordering and delivering.

Passenger automobiles. Any four-wheeled vehicle manufactured primarily for use on public roads that is rated at or below 6,000 pounds unloaded GVW. Exceptions: Ambulances, hearses, vehicles used directly in the business of transporting persons or property for hire, and any truck or van that has been specially modified so that it is not likely to be used more than minimally for personal purposes (such as a van that has only a front bench for seating, has permanent shelving filling most of the cargo area, that constantly carries merchandise or equipment, and that has been specially painted with advertising or the company’s name).

Other property used for transportation. Includes any vehicle used for transporting persons or goods. It does not include any vehicle or property that is of a type ordinarily not susceptible to more than a minimal amount of personal use. There are specific exemptions.

Property of a type generally used for entertainment, recreation or amusement. Includes assets such as a photographic, phonographic, communication and video recording equipment.

Computers and related peripheral equipment are considered listed property unless they are used only at a regular business establishment or qualified home office. The computer and related peripheral equipment must be owned or leased by the individual operating the establishment.
Definitions:

• Computer. Programmable electronic device that consists of a central processing unit containing extensive storage, logic, arithmetic and control capabilities and is capable of accepting information, applying prescribed processes to the information and supplying the results of the processes.
• Peripheral Equipment. Any auxiliary machine designed to be placed under the control of the central processing unit of a computer.

Cellular phones or similar telecommunication equipment.

Substantiation Requirements – Listed Property

• The taxpayer must substantiate each element of an expenditure or use by adequate records or sufficient evidence corroborating the taxpayer’s statement.
• Written evidence is considerably more valuable than verbal evidence alone.
• Written evidence is better the closer in time it relates to the expenditure or use.
• A contemporaneous log is not required. However, a record of the elements of an expenditure or of a business use of listed property made at or near the time of the expenditure or use, supported by sufficient documentary evidence, has a high degree of credibility not present with a statement prepared after the fact when there is a lack of accurate recall.