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Cheap Tax SoftwareCheap tax software 5. Cheap tax software 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. Cheap tax software This chapter discusses the records you need to keep to prove these expenses. Cheap tax software If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. Cheap tax software You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. Cheap tax software These plans are discussed in chapter 6 under Reimbursements . Cheap tax software How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. Cheap tax software You must be able to prove the elements listed across the top portion of the chart. Cheap tax software You prove them by having the information and receipts (where needed) for the expenses listed in the first column. Cheap tax software You cannot deduct amounts that you approximate or estimate. Cheap tax software You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. Cheap tax software You must generally prepare a written record for it to be considered adequate. Cheap tax software This is because written evidence is more reliable than oral evidence alone. Cheap tax software However, if you prepare a record on a computer, it is considered an adequate record. Cheap tax software 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. Cheap tax software You should also keep documentary evidence that, together with your record, will support each element of an expense. Cheap tax software Documentary evidence. Cheap tax software You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Cheap tax software Exception. Cheap tax software Documentary evidence is not needed if any of the following conditions apply. Cheap tax software 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. Cheap tax software ( Accountable plans and per diem allowances are discussed in chapter 6. Cheap tax software ) Your expense, other than lodging, is less than $75. Cheap tax software You have a transportation expense for which a receipt is not readily available. Cheap tax software Adequate evidence. Cheap tax software Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. Cheap tax software For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. Cheap tax software The name and location of the hotel. Cheap tax software The dates you stayed there. Cheap tax software Separate amounts for charges such as lodging, meals, and telephone calls. Cheap tax software A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. Cheap tax software The name and location of the restaurant. Cheap tax software The number of people served. Cheap tax software The date and amount of the expense. Cheap tax software If a charge is made for items other than food and beverages, the receipt must show that this is the case. Cheap tax software Canceled check. Cheap tax software A canceled check, together with a bill from the payee, ordinarily establishes the cost. Cheap tax software However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. Cheap tax software Duplicate information. Cheap tax software 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. Cheap tax software You do not have to record amounts your employer pays directly for any ticket or other travel item. Cheap tax software 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. Cheap tax software Timely-kept records. Cheap tax software 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. Cheap tax software A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. Cheap tax software You do not need to write down the elements of every expense on the day of the expense. Cheap tax software If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. Cheap tax software If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. Cheap tax software This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. Cheap tax software Proving business purpose. Cheap tax software You must generally provide a written statement of the business purpose of an expense. Cheap tax software However, the degree of proof varies according to the circumstances in each case. Cheap tax software If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. Cheap tax software Example. Cheap tax software 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. Cheap tax software 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. Cheap tax software You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. Cheap tax software Confidential information. Cheap tax software 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. Cheap tax software 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. Cheap tax software 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. Cheap tax software 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. Cheap tax software Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Cheap tax software Documentary evidence can be receipts, paid bills, or similar evidence. Cheap tax software 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. Cheap tax software For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Cheap tax software Invoices of deliveries establish when you used the car for business. Cheap tax software Table 5-1. Cheap tax software How To Prove Certain Business Expenses IF you have expenses for . Cheap tax software . Cheap tax software THEN you must keep records that show details of the following elements . Cheap tax software . Cheap tax software . Cheap tax software Amount Time Place or Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. Cheap tax software Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Cheap tax software Dates you left and returned for each trip and number of days spent on business. Cheap tax software Destination or area of your travel (name of city, town, or other designation). Cheap tax software Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Cheap tax software Relationship: N/A Entertainment Cost of each separate expense. Cheap tax software Incidental expenses such as taxis, telephones, etc. Cheap tax software , may be totaled on a daily basis. Cheap tax software Date of entertainment. Cheap tax software (Also see Business Purpose. Cheap tax software ) Name and address or location of place of entertainment. Cheap tax software Type of entertainment if not otherwise apparent. Cheap tax software (Also see Business Purpose. Cheap tax software ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Cheap tax software For entertainment, the nature of the business discussion or activity. Cheap tax software 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. Cheap tax software Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Cheap tax software For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. Cheap tax software Gifts Cost of the gift. Cheap tax software Date of the gift. Cheap tax software Description of the gift. Cheap tax software Transportation Cost of each separate expense. Cheap tax software 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. Cheap tax software Date of the expense. Cheap tax software For car expenses, the date of the use of the car. Cheap tax software Your business destination. Cheap tax software Purpose: Business purpose for the expense. Cheap tax software Relationship: N/A Sampling. Cheap tax software 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. Cheap tax software 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. Cheap tax software Example. Cheap tax software You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. Cheap tax software There is no other business use of the car, but you and your family use the car for personal purposes. Cheap tax software You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Cheap tax software Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Cheap tax software 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. Cheap tax software Exceptional circumstances. Cheap tax software 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. Cheap tax software This applies if all the following are true. Cheap tax software 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 . Cheap tax software You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . Cheap tax software You have presented other evidence for the element that is the best proof possible under the circumstances. Cheap tax software Destroyed records. Cheap tax software If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Cheap tax software Reasons beyond your control include fire, flood, and other casualties. Cheap tax software Table 5-2. Cheap tax software 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. Cheap tax software ) 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. Cheap tax software Separating expenses. Cheap tax software Each separate payment is generally considered a separate expense. Cheap tax software 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. Cheap tax software You must record them separately in your records. Cheap tax software Season or series tickets. Cheap tax software If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. Cheap tax software 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. Cheap tax software You must keep records to show whether you use each ticket as a gift or entertainment. Cheap tax software 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. Cheap tax software See Entertainment tickets in chapter 2. Cheap tax software Combining items. Cheap tax software You can make one daily entry in your record for reasonable categories of expenses. Cheap tax software Examples are taxi fares, telephone calls, or other incidental travel costs. Cheap tax software Meals should be in a separate category. Cheap tax software You can include tips for meal-related services with the costs of the meals. Cheap tax software Expenses of a similar nature occurring during the course of a single event are considered a single expense. Cheap tax software 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. Cheap tax software Car expenses. Cheap tax software 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. Cheap tax software Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. Cheap tax software Example. Cheap tax software 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. Cheap tax software You can account for these using a single record of miles driven. Cheap tax software Gift expenses. Cheap tax software You do not always have to record the name of each recipient of a gift. Cheap tax software 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. Cheap tax software 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. Cheap tax software Allocating total cost. Cheap tax software 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. Cheap tax software To do so, you must establish the number of persons who participated in the event. Cheap tax software An allocation would be needed, for example, if you did not have a business relationship with all of your guests. Cheap tax software See Allocating between business and nonbusiness in chapter 2. Cheap tax software If your return is examined. Cheap tax software If your return is examined, you may have to provide additional information to the IRS. Cheap tax software 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. Cheap tax software THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. Cheap tax software Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. Cheap tax software Travel Expenses: Airlines Excess Baggage Bus – Train Cab and Limousine Tips Porter 2. Cheap tax software Meals and Lodging: Breakfast Lunch Dinner Hotel and Motel (Detail in Schedule B) 3. Cheap tax software Entertainment (Detail in Schedule C) 4. Cheap tax software Other Expenses: Postage Telephone & Telegraph Stationery & Printing Stenographer Sample Room Advertising Assistant(s) Trade Shows 5. Cheap tax software Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. Cheap tax software ) (Detail mileage in Schedule A. Cheap tax software ) Gas, oil, lube, wash Repairs, parts Tires, supplies Parking fees, tolls 6. Cheap tax software Other (Identify) Total Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. Cheap tax software 00 or more. Cheap tax software 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. Cheap tax software 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. Cheap tax software A return filed early is considered filed on the due date. Cheap tax software For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. Cheap tax software You must keep records of the business use of your car for each year of the recovery period. Cheap tax software See More-than-50%-use test in chapter 4 under Depreciation Deduction. Cheap tax software Reimbursed for expenses. Cheap tax software 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. Cheap tax software However, you may have to prove your expenses if any of the following conditions apply. Cheap tax software You claim deductions for expenses that are more than reimbursements. Cheap tax software Your expenses are reimbursed under a nonaccountable plan. Cheap tax software Your employer does not use adequate accounting procedures to verify expense accounts. Cheap tax software You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. Cheap tax software Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. Cheap tax software Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. Cheap tax software Prev Up Next Home More Online Publications
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