Some parts of the tax code almost read like another language. The terminology isn’t always familiar, and that can be a real challenge if the IRS has contacted you with any questions about your tax return.
In those situations, one of the words you might come across is “contemporaneous.” This has a very specific definition for the IRS. Whenever you’re making a significant claimed deduction, it’s definitely a term you’ll need to know!
What Does Contemporaneous Documentation Mean?
The IRS will occasionally request to see additional documentation to support a claim that you’ve made on your tax return. Whenever a receipt was created in relation to a claimed deduction—and more specifically, at the same time of that expense—you’ll want to hold onto that record.
Every taxpayer should actively request “contemporaneous documentation” for their anticipated deductions. And the easiest way to understand that is to always ask for a receipt! The IRS will actually hold it against you if you try to collect those records at a later date, so it’s critical for taxpayers to collect them whenever they make a purchase.
If you happen to realize that you’re missing the documentation you need for claiming your deduction, be sure to call and get one sent to you ASAP. The key here is to have the receipt dated as of the date of the activity or your service.
Making Sure You Don’t Fall Behind
You might know for sure that your expense is valid for a deduction, but without that receipt or other relevant contemporaneous documentation, then the IRS will typically be able to eliminate that deduction on your return. Some of the most common scenarios that will require clear documentation include:
· Charitable contributions
· Business deductions and travel expenses
· Mileage logs for volunteering, medical, etc.
· Tips records
· Gambling losses
It’s important for taxpayers to pay special attention to any of their donated items gifted to a qualified charitable organization. Donated vehicles and boats are known for having high market value, and their estimated values can fluctuate from month to month. Make sure you get that documentation at the time of making any donation of $250 or greater.
Keeping a log throughout the year of what you’re planning to deduct, along with a note of whether that confirmation documentation has been saved will help you be set for tax season.
One last tip is to wait to file until you have all of your contemporaneous records sorted. This can often be a source of trouble for taxpayers who are missing documentation for charitable contributions, because those are some of the most frequently claimed deductions.
NSO and Company is Here to Help!
There are plenty of tax terms that can quickly become confusing or overwhelming. Working with an experienced tax planner or CPA firm can help you sort through any request from the IRS that seems unclear.
NSO & Company is based in the Fishers area north of Indianapolis, and we serve clients all throughout central Indiana and beyond. We specialize in small and mid-size businesses and self-employed taxpayers. Please don’t ever hesitate to reach out! We’re always happy to schedule consultations with new and prospective clients.