Travel and entertainment deductions: your burden of proof

Your Guide to State, Local, Federal, Estate + International Taxation

entertainment, travel, deductions, tax, IRSDid you know that one of the first things that is looked at if your business return is audited is your travel and entertainment expenses? Below are some tips and tricks for 2018 to help avoid any disputes if it is ever questioned.

The tax law spells out detailed rules about how these expenses must be verified and documented and I have listed the big ones below.

  1. Receipts are needed for all lodging expenses (even if the cost is under $75) unless the company pays traveling employees only the IRS-approved per-diem rate.
  2. Those incurring the expense still have to record the time, place, business reason and amount of each travel and entertainment expenditure (unless a per-diem is used, in which case amounts don’t have to be recorded at all).
  3. Businesses should note that an expense for more than $75 unaccompanied by a receipt does not receive a minimum $74.99 deduction by default; an IRS examiner will treat the expense as $0.00 instead.

You may want to consider reviewing your travel and entertainment recordkeeping this year. If you have anything that is over $75.00 recorded with no supporting documentation, update your substantiation procedures and your recordkeeping practices so this does not happen in the future.

Please note that the new tax law passed in 2017 limits the deduction for entertainment expenses in 2018, so be sure to check the new rules for 2018!

Meghan M. Scott, EA