Johnson Price Sprinkle PA accounting firm shares insight into the question “Would you like a copy of your receipt?”. JPS, a leading CPA firm in Western North Carolina with offices in Asheville, Boone and Marion, NC, provides small to middle market businesses with tax, audit, and business consulting solutions.
We’re all familiar with this question when making a purchase in a store or restaurant. This leads to another question: are you keeping adequate records of your business travel and entertainment (including meal) expenses? If not, the IRS may deny your travel and entertainment deductions, causing you to pay more tax. In a recent Tax Court case, the IRS denied a taxpayer her business travel and entertainment deductions due to inadequate documentation (Windham, TC Memo 2017-68).
What is adequate documentation for travel and entertainment deductions? The IRS requires that the following items be documented:
• The amount of the deduction;
• The time and place of the deduction;
• The business purpose of the deduction; and
• The business relationship of the taxpayer of the individual being entertained.
In addition to the above, documentary evidence (e.g. receipt, bill, cancelled check) is generally required. An exception to this requirement is made for non-lodging expenses costing less than $75. Of course, all documentation should be legible.
In the Tax Court case mentioned earlier, the taxpayer only provided the names of the individuals that were being entertained to support the receipts provided. The taxpayer attempted to establish a business connection for the deductions, but the amounts were considered excessive, were questionable in nature, and there was no additional compelling evidence. As a result, the deductions were considered personal and thus denied.
Record-keeping may be a daunting task, but taking the extra time to adequately document your travel and entertainment expenses can determine whether or not the deductions will be allowed. Take a few minutes to develop a system to help keep your documentation organized. If you find yourself travelling a lot, consider one of several available mobile apps designed to help you track and document travel costs. It’s worth it should the deductions ever be challenged.
Have questions about documenting and deducting travel & entertainment expenses?
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