Ever wondered how deductions are determined by the IRS? Let’s uncover the truth! 💡

In tax court cases, one thing we often see is the disallowance of deductions when taxpayers fail to provide sufficient evidence. It may sound obvious – no proof, no deduction – but it’s a common occurrence.

You’ve probably come across those flashy tax-social media posts questioning how the IRS can prove that “insert silly deduction here” is not legitimate. Well, here’s the twist: it’s not the IRS’s responsibility to prove it, it’s yours. 🕵️‍♂️

As per the Courts Rule 142(a), “The Commissioner’s determination is generally presumed correct, and the taxpayer bears the burden of proving the determination is in error.” That means it’s up to you to substantiate your claimed deductions.

So, how can you prove it? 📜 My suggestion is to keep detailed documentation that covers the who/what/when/where/why aspects of your deductions. Let’s take a business trip as an example:

Who: Me (a savvy business owner)

What: Attended an accounting conference (supported by a receipt of conference ticket)

When/Where: June 5th-8th, in fabulous Las Vegas, Nevada (evidenced by a plane ticket receipt)

Why: Continuing Education & Networking (backed by documentation of Continuing Education Credits earned, as well as receipts for networking meals with colleagues)

In this case, as a business owner, it’s crucial to demonstrate that this trip was both ordinary and necessary in the regular course of your business. If you’re an accountant attending an accounting conference for continuing education, it’s an expense the IRS would expect someone in your industry to have. However, let’s switch things up. Suppose you attended a beauty industry conference instead (assuming you have no accounting work in that field). In that scenario, the deduction would not be applicable because it’s neither ordinary nor necessary for your line of work.

Remember, the key to success lies in your ability to prove the validity of your deductions. By keeping thorough documentation, you’ll be well-prepared to address any inquiries that come your way. Stay informed, stay organized, and stay ahead of the tax game! 💪💼

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