My tax preparer says there is no such thing as a $75 rule for receipts on vehicle expenses, The information below was provided to us from Bradford Tax Institute.

 

Question

 

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 car expenses. Can you give me the rule that says I do not need receipts if the vehicle expense is less than $75?

 

Answer

 

Certainly! The $75 rule is contained in IRS Regulation 1.274-5(c)(2)(iii), and the best explanation of what this rule says is found in IRS Notice 95-50, which states that the $75 rule applies to travel, entertainment, gifts, and listed property. IRC Section 280(f)(d)(4) states that “listed property” includes any passenger automobile and any other property used as a means of transportation.

 

Explicitly,

this means that your vehicle is listed property; therefore, you do not need a receipt for a vehicle expense that is less than $75.

 

Key point. Tax law requires proof even when the law says you don’t need a receipt. So, always think proof. If you don’t have receipts, do your gas expenses help prove your mileage, and does your mileage help prove your gas expenses? Do you jot down the cost of gas on a timely basis? (The IRS gives you up to one week for this timely test.)

 

More About This Rule

 

The IRS enables the $75 receipt rule only for Section 274(d) expenses which are expenses for travel, gifts, and listed property that require heightened documentation. (The Tax Cuts and Jobs Act removed 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 vehicle, you don’t need a receipt. You can see how easy it is to get this rule wrong

 

Beware. Your bank and credit card statements do not give you a receipt. Those statements prove that you paid the money, but not what you paid for.

 

Example. Sally buys gas and $25 worth of groceries at the gas station. The credit card shows the total purchase, but only the receipt sets forth the gas purchase.

 

Planning tip. Keep receipts. Ignore the $75 rule. It’s too confusing because it applies to your vehicle, gifts, and travel—and almost nothing else. And it doesn’t really save time.

 

 

Don’t forget:

 

• The credit card or bank statement proves you spent the money.

 

• The receipt shows what you paid for.

 

• The combination wins the deduction.

 

 

May 3, 2022 | DWHuff Consulting

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