Understanding Tax Terms — Contemporaneous Records (What You Need To Know)

Contemporaneous Defined

According to the IRS, it means the records used to support a claim on your tax return were 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.

Not Fair!

Perhaps you know you had the expense, but you simply forgot to get a receipt. You can cry foul, but time and again the IRS wins, as tax courts uphold their elimination of a taxpayer's deduction for lack of contemporaneous documentation.

Here are some areas where contemporaneous documentation is especially important:

• Charitable contributions
• Business deductions for expenses and capital purchases
• Mileage logs
• Tip records
• Gambling losses
• Traveling and entertainment expenses
• Hobby losses

The donation of vehicles, boats, and planes is often the most cited area where lack of contemporaneous documentation is a problem. This is because the value of this type of donation can be high and the estimated market value could change each month.

Timely, written acknowledgement from the charitable organization is also required for any donation of $250 or more.

What You Need to Know

• 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 Form 1098-C 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.
• Think tax year. Understanding the definition of contemporaneous is important, because it's not always precisely defined. If the documentation is received in the same year as the donation or transaction, you are usually in good shape.
• Keep a log. Many expenses require the correct documentation at the time the activity occurred. This is true with deductible mileage, gambling losses, and documenting your tip income. So keep a log of your activities when they occur.
• Wait to file. Often, to meet the IRS definition of contemporaneous, the receipt or acknowledgement must be received the earlier of either when you file your tax return or the due date (including extensions) of your tax return. If you want to play it safe, do not file until all documentation is in hand.
• Take a snapshot. If you barter for goods and services, document the date of the service provided and save a copy of a similar item being sold (an advertisement or copy of a service offering) around the same time. This timely documentation can help establish the fair market value of both the service you receive and the service you provide.
• Tip and overtime income. With the advent of tax-free tip and tax-free overtime income, you will need to be prepared to defend these deductions. This can be especially tough since employers may not be able to break these dollar amounts out on this year’s 1099s and W-2s. Be sure to obtain an independent, contemporaneous record of this income from your employer before filing this year’s tax return.