What Records Must Be Kept Words you may need to know (see Glossary): Business/investment use Circumstantial evidence Documentary evidence You cannot take any depreciation or section 179 deduction for theuse of listed property (including passenger automobiles) unless youcan prove your business/investment use with adequate records or withsufficient evidence to support your own statements. The period of timeyou must keep these records is discussed later in How Long ToKeep Records. Adequate Records Files: To meet the adequate records requirement, you must maintain anaccount book, diary, log, statement of expense, trip sheet, or similarrecord or other documentary evidence that, together with the receipt,is sufficient to establish each element of an expenditure or use. Youdo not have to record information in an account book, diary, orsimilar record if the information is already shown on the receipt.However, your records should back up your receipts in an orderlymanner. Elements of Expenditure or Use Your records or other documentary evidence must support all of thefollowing. The amount of each separate expenditure, such as the cost ofacquiring the item, maintenance and repair costs, capital improvementcosts, lease payments, and any other expenses. The amount of each business and investment use (based on anappropriate measure, such as mileage for vehicles and time for otherlisted property), and the total use of the property for the tax year. The date of the expenditure or use. The business or investment purpose for the expenditure oruse. Written documents of your expenditure or use are generally betterevidence than oral statements alone. A written record you prepare ator near the time of the expenditure or use has greater value as proofof the expenditure or use. You do not have to keep a daily log.However, some type of record containing the elements of an expenditureor the business or investment use of listed property made at or nearthe time and backed up by other documents is preferable to a statementyou prepare later. Timeliness You must record the elements of an expenditure or use at the timeyou have full knowledge of the elements. An expense account statementmade from an account book, diary, or similar record prepared ormaintained at or near the time of the expenditure or use is generallyconsidered a timely record if in the regular course of business: The statement is given by an employee to the employer,or The statement is given by an independent contractor to theclient or customer. For example, a log maintained on a weekly basis, which accounts foruse during the week, will be considered a record made at or near thetime of use. Business Purpose Supported Generally, an adequate record of business purpose must be in theform of a written statement. However, the amount of backup necessaryto establish a business purpose depends on the facts and circumstancesof each case. A written explanation of the business purpose will notbe required if the purpose can be determined from the surroundingfacts and circumstances. For example, a salesperson visiting customerson an established sales route will not normally need a writtenexplanation of the business purpose of his or her travel. Business Use Supported An adequate record contains enough information on each element ofevery business or investment use. The amount of detail required tosupport the use depends on the facts and circumstances. For example, ataxpayer whose only business use of a truck is to make customerdeliveries on an established route can satisfy the requirement byrecording the length of the route, including the total number of milesdriven during the tax year and the date of each trip at or near thetime of the trips. Although you generally must prepare an adequate written record, youcan prepare a record of the business use of listed property using acomputer memory device that uses a logging program. Separate or CombinedExpenditures or Uses Each use by you is normally considered a separate use. However, youcan combine repeated uses as a single item. Record each expenditure as a separate item. Do not combine it withother expenditures. If you choose, however, you can combine amountsyou spent for the use of listed property during a tax year, such asfor gasoline or automobile repairs. If you combine these expenses, youdo not need to support the business purpose of each expense. Instead,you can divide the expenses based on the total business use of thelisted property. You can account for uses which can be considered part of a singleuse, such as a round trip or uninterrupted business use, by a singlerecord. For example, you can account for the use of a truck to makedeliveries at several locations that begin and end at the businesspremises and can include a stop at the business in between deliveriesby a single record of miles driven. You can account for the use of apassenger automobile by a salesperson for a business trip away fromhome over a period of time by a single record of miles traveled.Minimal personal use (such as a stop for lunch between two businessstops) is not an interruption of business use. Confidential Information If any of the information on the elements of an expenditure or useis confidential, you do not need to include it in the account book orsimilar record if you record it at or near the time of the expenditureor use. You must keep it elsewhere and make it available as support tothe district director on request. Substantial Compliance If you have not fully supported a particular element of anexpenditure or use, but have complied with the adequate recordsrequirement for the expenditure or use to the district director'ssatisfaction, you can establish this element by any evidence thedistrict director deems adequate. If you fail to establish to the district director's satisfactionthat you have substantially complied with the adequate recordsrequirement for an element of an expenditure or use, you mustestablish the element as follows. By your own oral or written statement containing detailedinformation as to the element. By other evidence sufficient to establish theelement. If the element is the cost or amount, time, place, or date of anexpenditure or use, its supporting evidence must be direct, such asoral testimony by witnesses or a written statement setting forthdetailed information about the element or the documentary evidence. Ifthe element is the business purpose of an expenditure, its supportingevidence can be circumstantial evidence. Sampling You can maintain an adequate record for portions of a tax year anduse that record to support your business and investment use for theentire tax year if it can be shown by other evidence that the periodsfor which you maintain an adequate record are representative of usethroughout the year. Example 1.Denise Williams, a sole proprietor and calendar year taxpayer,operates an interior decorating business out of her home. She uses herautomobile for local business visits to the homes or offices ofclients, for meetings with suppliers and subcontractors, and to pickup and deliver items to clients. There is no other business use of theautomobile, but she and family members also use it for personalpurposes. She maintains adequate records for the first three months ofthe year showing that 75% of the automobile use was for business.Subcontractor invoices and paid bills show that her business continuedat approximately the same rate for the rest of the year. If there isno change in circumstances, such as the purchase of a second car forexclusive use in her business, the determination that her combinedbusiness/investment use of the automobile for the tax year is 75%rests on sufficient supporting evidence. Example 2.Assume the same facts as in Example 1 except that Denise maintainsadequate records during the first week of every month showing that 75%of her use of the automobile is for business. Her business invoicesshow that her business continued at the same rate during the laterweeks of each month so that her weekly records are representative ofthe automobile's business use throughout the month. The determinationthat her business/investment use of the automobile for the tax year is75% rests on sufficient supporting evidence. Example 3.Bill Baker, a sole proprietor and calendar year taxpayer, is asalesman in a large metropolitan area for a company that manufactureshousehold products. For the first three weeks of each month, heoccasionally uses his own automobile for business travel within themetropolitan area. During these weeks, his business use of theautomobile does not follow a consistent pattern. During the fourthweek of each month, he delivers all business orders taken during theprevious month. The business use of his automobile, as supported byadequate records, is 70% of its total use during that fourth week. Thedetermination based on the record maintained during the fourth week ofthe month that his business/investment use of the automobile for thetax year is 70% does not rest on sufficient supporting evidencebecause his use during that week is not representative of use duringother periods. Loss of Records When you establish that failure to produce adequate records is dueto loss of the records through circumstances beyond your control, suchas through fire, flood, earthquake, or other casualty, you have theright to support a deduction by reasonable reconstruction of yourexpenditures and use. Reporting Informationon Form 4562 If you claim a deduction for any listed property, you must providethe requested information on page 2, Section B of Form 4562. If youclaim a deduction for any vehicle, you must answer certain questionson page 2 of Form 4562 to provide information about the vehicle use. Employees.Employees claiming actual expenses (including depreciation) or thestandard mileage rate must use either Form 2106 or Form 2106-EZinstead of Part V of Form 4562. Employer who provides vehicles to employees.An employer who provides vehicles to employees must obtain enoughinformation from those employees to provide the requested informationon Form 4562. An employer who provides more than five vehicles to employees doesnot need to include any information on his or her tax return. Instead,the employer must obtain the information from his or her employees andindicate on his or her return that the requested information wasobtained and is being retained. You do not need to provide the information requested on page 2 ofForm 4562 if, as an employer, you satisfy the following requirements. You can satisfy the requirements of a written policystatement for vehicles either not used for personal purposes, or notused for personal purposes other than commuting. You treat all vehicle use by employees as personal use. See the instructions for Form 4562. How Long To Keep Records Files: For listed property, you must keep records for as long as anyexcess depreciation can be recaptured (included in income). Recapture can occur in any tax year of the recovery period.