The one piece of advice from tax preparers and financial advisors that\u2019s relatively consistent is that you should always keep receipts to document your expenses. While that is certainly true, it\u2019s not necessarily a deal-breaker when it comes to claiming expenses at tax time.<\/p>\n
That\u2019s because of the outcome of a famous court case, Cohan v. Commissioner. George M. Cohan was an American playwright and composer who took the Broadway scene by storm. While the court decision was made in 1930, the \u201cCohan Rule\u201d as it is known, has saved the tax returns of more than a few taxpayers.<\/p>\n
In the late 1920\u2019s, Cohan attempted to claim a large amount of expenses for travel and entertainment on his tax return. The problem arose when the IRS denied his request due to lack of receipts. Cohan claimed he often paid in cash, and therefore didn\u2019t have receipts. Because of Cohan\u2019s determination and inability to accept the word \u201cNo\u201d, he sued the IRS. He didn\u2019t win, as the court sided with the IRS and upheld the standard of good record-keeping and documentation. However, Cohan was persistent, and appealed the Second Circuit.<\/p>\n
The IRS was shocked when the Appeals Court developed the Cohan Rule in 1930. The rule is still in effect today, and is one of the only ways to counter the typical record and document proof of the IRS. Under the rule, taxpayers can claim expenses by using \u201cother credible evidence\u201d to prove their deductions. In the case, Cohan stated that his payments were made in cash, but he provided witnesses to support his claims by testifying to expensive dinners and other expenses. This is, obviously, a difficult way to prove expenses, but it can be done.<\/p>\n
The IRS isn\u2019t the Cohan Rule\u2019s biggest fan. If you want to use it, be aware that you may end up in court, and even then, you may not entirely win. However, it is possible that the IRS will accept oral or written communication and other supporting evidence to prove your deductions. IF you keep the expenses reasonable, you may just be granted your deductions even without substantial documentation that we are used to.<\/p>\n
So if you can\u2019t seem to find your receipts this tax season, remember, all hope is not lost. Find another way to prove that the expense occurred and then thank Mr. Cohan when you get a little extra cash in your pocket despite your lack of a paper trail.<\/p>\n","protected":false},"excerpt":{"rendered":"
The one piece of advice from tax preparers and financial advisors that\u2019s relatively consistent is that you should always keep receipts to document your expenses. While that is certainly true, it\u2019s not necessarily a deal-breaker when it comes to claiming expenses at tax time. That\u2019s because of the outcome of a famous court case, Cohan […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[125],"tags":[454,455,453],"class_list":["post-811","post","type-post","status-publish","format-standard","hentry","category-general-filing","tag-cohan-rule","tag-george-m-cohan","tag-receipts"],"yoast_head":"\n