Understanding the IRS tax code and terminologies used can be hard at times. One of the more uncommon words used by the IRS is the term “contemporaneous records.” So what does it really mean, and why should you care?
According to the IRS, “contemporaneous” means the records used to support a claim on a tax return are created and originated at the same time as your claimed deduction. In other words, if you realize that you forgot to get a receipt for something, you are out of luck if you try to get one at a later date.
Some will shout, Not fair! This may be the case, you know you had the expense, but you simply forgot to get a receipt. Unfortunately, the IRS has had the tax courts enforce the elimination of a deduction due to lack of contemporaneous documentation. There are some areas where the term contemporaneous is especially important. To name a few, charitable contributions, business deductions for expenses and capital purchases, mileage logs, tips, gambling losses, and business travel expenses.
To maximize your deductions, make sure you're following tax law & regulations set forth, you should always, in a timely manner, get written acknowledgement from the charitable organization. You should always consider to:
Always get a receipt. Before you leave a donated item, always ask for a receipt. In the case of a vehicle, make sure the charitable organization gives you a 1098-C that is fully filled out. In addition, make sure the organization uses your vehicle or is a qualified charitable group that allows you to take the full market value of your donation.
If you forget, call right away. As soon as you realize a confirmation or receipt is missing, call to get one sent to you. Request that the receipt be dated as of the date of the service or activity.
Keep a log as they occur. Many transactions require the correct documentation at the time of the activity. This is especially true with deductible mileage, gambling loses and tip income.
To meet the IRS definition of contemporaneous, the receipt or acknowledgement must be received either when you file your tax return or the due date of your tax return. This is particularly true with charitable contributions. So if you want to play it safe, do not file until you have all documentation is in hand.
Understanding the definition of contemporaneous is important, because it is not always precisely defined. If the documentation is received in the same year as the donation or transaction, you are usually in good shape. For more updates on proven financial strategies, tax updates and money management tips, subscribe to our blog.
