10. “Snakeman” Jackson, as his friends call him, is an aging blues guitarist and

Question

10. “Snakeman” Jackson, as his friends call him, is an aging blues guitarist and songwriter. He frequently tours throughout Europe and South America. He requires tour promoters to pay him half of his fee upfront. He then collects the other half of his fee in cash from the performance venue immediately following the performance. He told you that he collects in cash because “once you’re gone, they forget you.”

“Snakeman” is a great guitarist, but not a great accountant. He maintains meticulous records of his gigs, including bank deposits, receipts, and copies of his contracts. He pays his backup musicians and roadies in cash, but always gets signed receipts from them. However, he pays for his hotels in cash, and usually checks out quickly without saving his receipts. He explained to you that he does this because, once he has collected in cash for a performance, he wants to minimize the amount of cash he physically carries with him to the next location. It is clear to you from your client’s website that he did in fact perform last year at over 80 venues throughout the world. How should you report the hotel expenses on Snakeman’s tax return? Explain

Explanation / Answer

The hotel expenses on Snakeman's tax return cannot be reported without the valid receipts from the hotel.

According to the IRS Publication 463, one does not need to keep a receipt for business expenses if the following conditions apply:

If an individual does not have a receipt, the IRS will consider the following “adequate evidence” which is sufficient to prove your expense qualifies for a deduction:

The person should keep a written or electronic record of the expenses for which they do not have a receipt for. In case of a sufficient evidence -

For hotel bookings pertaining to business, he will need to provide the following along with the receipt from the purchase:

Since Snakeman does not have valid evidence of the stay, he cannot report the hotel expenses without a valid proof. Hence it comes under insufficient evidence.

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