Substantiation

What is substantiation?

Substantiation is the documentation required to support tax deductions and business expenses. The IRS requires contemporaneous records showing the amount, date, place, and business purpose of expenses. For certain categories like travel, meals, and gifts, additional information about attendees and business relationships is required. Without proper substantiation, deductions may be disallowed on audit.

The contemporaneous requirement

Records created at the time of expense carry more weight than those reconstructed later. Calendar entries, receipts, expense reports filed promptly, and mileage logs maintained throughout the year all demonstrate contemporaneous recording. If the IRS asks about an expense two years later, a receipt from that date is far more credible than a spreadsheet you created last week.

Technology for substantiation

Expense tracking apps capture receipts via smartphone camera with timestamp and location data. Mileage tracking apps log trips automatically. Credit card and bank integrations pull transaction data into accounting systems. These tools make contemporaneous record-keeping easier than ever. The technology exists. Using it consistently is the challenge most businesses face.