Audit-Proofing Your Travel and Entertainment Expenses

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Aircraft-479772_1280The tax law allows you to deduct travel and entertainment (T&E) related to your business.  But the IRS doesn’t like it, and it is a top audit target of IRS examiners.  Your best defense is understanding the rules and gathering all the necessary documentation before the IRS auditors come in.

The IRS regulations require that you have “adequate records” to substantiate T&E amounts.  This usually means you must have the receipt to prove how much you spent, as well as when and where the T&E occurred.  I recommend that you also write on the back of the receipt who was present and what business purpose was served.

For travel, I would document the business purpose even further.  If you went to a conference, keep the literature.  If you met a potential customer or supplier, keep a copy of their business cards.  Keep copies of your itineraries, e-mails and letters about the meeting, and other similar proof of attendance.

Key exceptions:  Documentary evidence isn’t required if 1) you incur the meal or lodging traveling away from home and you must account to your employer, and 2) your expense (other than lodging) is under $75.

The IRS or courts may still allow the deduction even without the required documentation, but the process is usually much more expensive and time-consuming.  A little prevention in advance is an extremely wise move.