I hear this all the time:
My tax preparer says there is no such thing as a $75 rule for receipts on vehicle expenses. He says I need receipts for all my automobile expenses. Can you give me the rule that says I do not require receipts if the vehicle expense is less than $75?
The Real Answer:
The $75 rule is contained in IRS Regulation 1.274-5( c)( 2 )( iii), and the best description of what this rule states is found in IRS Notice 95-50, which states that the $75 guideline applies to travel, entertainment, gifts, and listed property. IRC Section 280( f)( d)( 4) mentions that “listed property” consists of any passenger vehicle and any other property used as a means of transportation.
Explicitly, this indicates that your automobile is listed property; therefore, you do not require a receipt for a vehicle expense that is less than $75.
Key point. Tax law requires evidence even when the law states you do not need a receipt. So, always think evidence. If you do not have invoices, do your gas expenses help prove your mileage, and does your mileage help prove your gas costs? Do you jot down the expense of gas on a timely basis? (The IRS provides you up to one week for this timely test.)
More About This Rule
The IRS allows the $75 receipt guideline just for Section 274( d) expenses which are expenses for travel, gifts, and listed property that requires increased documentation. (The Tax Cuts and Jobs Act got rid of home entertainment as a tax deduction.)
Example. If you buy office supplies that cost $15, you need a receipt. But if you pay $65 to pump gas into your business car, you don’t need an invoice. You can see how simple it is to get this rule incorrect.
Be careful. Your bank and credit card statements do not provide you a receipt. Those statements prove that you paid the money, however not what you paid for
Example. Sally buys gas and $25 worth of groceries at the gas station. The charge card shows the total purchase, but only the receipt sets forth the gas purchase.
Planning idea. Keep receipts. Disregard the $75 rule. It’s too complicated due to the fact that it applies to your automobile, gifts, and travel– and practically nothing else. And it doesn’t actually save time.
Takeaways
The simple rules not to forget:
The charge card or bank statement proves you spent the money.
The receipt shows what you paid for.
The mix wins the deduction!
If you have questions about the $75 Rule, feel free to contact me at 509-543-7600 or send a request HERE.
June 2022
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