Do’s and Don’t’s for Deducting Meals, Entertainment and Travel
If you’re claiming a deduction for meals, entertainment, auto or travel expenses, expect the IRS to closely review it. Tax auditors are adept at rooting out inconsistencies, omissions and errors in taxpayers’ records.
So, DO keep detailed, accurate records. Documentation is critical when it comes to deducting meals, entertainment, auto and travel expenses.
DON’T try to re-create expense logs at year end or wait until you receive an IRS deficiency notice. Take a moment to record the details in a log or diary at the time of the event or soon after. Require employees to submit monthly expense reports.
DO respect the fine line between personal and business expenses. Be particularly careful about trying to combine business and pleasure.
DON’T be surprised when the IRS asks you to prove your deductions. Meals, entertainment, auto and travel expenses are always a magnet for attention. Therefore, be prepared for a challenge. With organization and guidance from your tax adviser, you can maintain tax return records that will stand up to close scrutiny from the IRS.
For more information about tax record keeping, consult with your tax adviser. There may be ways to substantiate your deductions that you haven’t thought of, and there may be a way to estimate certain deductions, if your records are lost due to, say, a fire, theft or flood. (Source: Boyer & Ritter LLP)