If you’ve ever found yourself wondering whether the IRS tax code is written in another language, you’re not alone! Some common words can take on entirely new meanings within the tax code. Then there’s the question of awkward vocab, like “contemporaneous.” The word might not pop up in your everyday conversations, but its meaning is critically important for anyone filing a tax return—especially if you’re claiming deductions.
What Are Contemporaneous Records?
In simple terms, contemporaneous documentation refers to records that are created at the same time as the expenses or deductions they’re meant to substantiate. For the IRS, it’s not enough to know you incurred an expense or made a donation; they want proof that aligns with the timing of your claim.
For instance, having a receipt dated when the transaction occurred or keeping a log to show that the activity happened are crucial parts of recordkeeping. Legitimacy is everything. If you attempt to recreate records or obtain documentation after the fact, the IRS will likely reject it—and they have the support of tax courts to back them up.
Why Contemporaneous Documentation Matters
The IRS relies on contemporaneous documentation to verify the accuracy of deductions. Without it, even legitimate expenses can be disallowed. Some of the most common areas where this requirement comes into play include:
• Charitable contributions: Donations of $250 or more require written acknowledgment from the organization, and for high-value items like vehicles or boats, this documentation becomes even more critical.
• Business expenses: From travel costs to capital purchases, accurate records are essential.
• Mileage logs: Whether for business purposes, volunteering, or medical appointments, a detailed log of mileage is often required.
• Tips: If you’re reporting tip income, you’ll need to maintain records contemporaneously.
• Gambling losses: Accurate records of wins and losses are a must for claiming gambling-related deductions.
Failing to provide timely, accurate documentation could mean losing out on deductions you’re entitled to, even if the expenses are legitimate.
Tips for Staying Ahead with Documentation
The key to meeting the IRS’s expectations for contemporaneous records is to stay proactive. One good practice is to always ask for a receipt. Before you leave a donation site or make a purchase you plan to deduct, ensure you have the necessary paperwork in hand. For vehicle donations, that means a request for a fully completed Form 1098-C.
Another habit to adopt is to act quickly if something is missing. If you realize you forgot to request documentation, contact the organization or vendor immediately. Ask them to date the receipt as of the original transaction date to meet IRS requirements. You can also work on maintaining your own log for activities like mileage, gambling, or tipping. Keeping an up-to-date log as the activity occurs can save you headaches later.
Then again, if you still have doubts, you can always wait to file if needed. The IRS considers documentation “contemporaneous” if it’s received by the earlier of either when you file your tax return or the due date (including extensions). Filing without proper records could leave you open to an audit or denial of your deductions. It might be better to wait!
Contemporaneous Records Protect You
Understanding and adhering to the IRS’s requirements for contemporaneous documentation isn’t just about avoiding audits. It’s about protecting yourself and ensuring you get the deductions you deserve. Proper documentation allows you to confidently respond to IRS inquiries without scrambling to reconstruct your records.
If navigating the complexities of tax terms and documentation feels overwhelming, working with an experienced tax professional can help. Whether you’re a small business owner, self-employed, or simply managing your personal taxes, our team at NSO & Company can ensure your deductions are backed by the right records. Don’t let the term “contemporaneous” intimidate you. By keeping good records and staying proactive, you’ll be well-prepared to handle your tax return and any questions that come your way. We can help show you how!