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2. Schedule C Expenses
Section 162(a) allows a taxpayer to deduct ordinary and
necessary business expenses paid or incurred during the taxable
year in carrying on any trade or business. Generally, deductions
are a matter of legislative grace, and the taxpayer bears the
burden of proving that he or she is entitled to any claimed
deduction. Rule 142(a); INDOPCO, Inc. v Commissioner, 503 U.S.
79, 84 (1992). A taxpayer is required to maintain records
sufficient to substantiate deductions that he or she claims on
his or her tax return. Sec. 6001; sec. 1.6001-1(a), Income Tax
Regs.
If a taxpayer cannot fully substantiate a business
deduction, the Court generally may estimate the amount of certain
expenses if the taxpayer provides sufficient evidence that he or
she has incurred a deductible expense. Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930). However, section 274(d)
overrides the so-called Cohan rule for expenses incurred for
travel or with respect to certain types of property such as a
passenger automobile, a computer or peripheral equipment, or a
cellular telephone or similar telecommunication equipment. Under
section 274(d), a deduction is not allowed unless the taxpayer is
able to substantiate the expense by adequate records or by
sufficient evidence corroborating the taxpayer’s own statement
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Last modified: May 25, 2011