Travel, Meals & Entertainment – Maximizing Deductions and Support
The IRS has established a more stringent set of rules for deducting meals & entertainment, travel, mileage, etc. These deductions take extra effort on the part of the taxpayer, but are well worth the peace of mind of knowing you have retained adequate records should you be audited.
General Rule – Meals & Entertainment
In accordance with IRC Section 274(a))(1), in order to deduct meals and entertainment, taxpayers must support that the expenditures are directly related to a bona fide business discussion, meeting or convention.
Documentation Requirements and Deductibility
IRC Section 274(d) and Treas. Regs. Section 1.274-5 also provide for full disallowance of meals, entertainment and lodging expenses unless the taxpayer can substantiate the business purpose of the expenditure. The following details must be documented for each lodging and other expenditures in excess of $75: 1) the amount of expense 2) the time and place of the meal, entertainment, etc. 3) the business purpose of the expenditure and 4) the business relationships of those in attendance.
IRC Section 274(n) applies a general 50% limitation on the deductible portion of “business related” meals and entertainment. There are, however, exceptions to this that allow for 100% deductibility. Below are some of the exceptions that allow for 100% deductibility:
General Rule – Travel
In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:
It should also be noted that commuting expenses are not deductible.
The IRS has put additional emphasis on substantiation of travel deductions. Lack of adequate records and records reconstructed from invoices and other sources after the fact have been disallowed in their entirety. The use of reasonable estimates is not sufficient to stand up to IRS challenge. The IRS requires substantiation of travel, entertainment, and mileage deductions. With respect to mileage deductions taxpayers should maintain a written log to substantiate the deduction. To claim these expenses, the IRS requires the maintenance of a daily log outlining miles traveled, destination and business purpose. We recommend the use of a formal mileage log book or use of an online calendar where the taxpayer enters the travel details and business purpose. You can print your online calendar monthly and tuck this away in a file in case you are ever audited. We have included an example below of an excerpt from an appropriate mileage log.
Date Time Description Purpose From To Start Finish Mileage
3/15/12 1:30PM Prospect: J. Smith Client Development Waltham Boston 33,389.1 33,521.4 32.3
4/14/12 6:00PM Seminar: P&C Business Education Waltham Boston 33,521.4 22,571.0 49.6
Please do not hesitate to contact us should you have any questions related to this article and how it may impact your situation.
Newburg & Company, LLP