If you have problems sleeping at night and turn to the IRS tax code for help, you might find some vocabulary that is very foreign to you. One of the more uncommon words the IRS uses when describing certain records is “contemporaneous.” So what does it mean, and why should you care?

What are contemporaneous records?

According to the IRS, the records used to support a claim on your tax return are created and originated simultaneously as your claimed deduction. In other words, if you realize you forgot to get a receipt for something, you are out of luck if you try to get one later.

Perhaps you knew you had the expense but forgot to get a receipt. You can cry foul, but time and time again, the tax courts have upheld the IRS’s elimination of a taxpayer’s deduction for lack of contemporaneous documentation. Here are some areas where the term contemporaneous is especially important:

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

Donating vehicles, boats, and planes is often the most cited area where lack of contemporaneous documentation is a problem because these types of donations have a high estimated market value that changes from month to month. However, timely, written acknowledgment 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 that is complete. 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. When 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 contemporaneous records is crucial because they are not always precisely defined. You are usually in good shape if you receive the documentation in the same year as the donation or transaction.
• Keep a log. Many transactions require the correct documentation at the time the activity occurs. This is true with deductible mileage, gambling losses, and tip income. So, keep a log of your activities as they arise.
• Wait to file. To meet the IRS definition of contemporaneous, the receipt or acknowledgment must be received earlier when you file your tax return OR the due date (including extensions) of your tax return. This is particularly true with charitable contributions. So, if you want to play it safe, do not file your tax return until all documentation is in hand.

Contact our RRBB advisors if you have any questions.