Most business owners know that they can deduct meals and entertainment costs associated with their business. Unfortunately, it’s also one of those expenses that the IRS likes to give particular attention. The underlying message being proceed cautiously and use common sense because Uncle Sam will be looking at those deductions closely.
Do not become comfortable in assuming your covered simply because you have your credit card receipts and statements to back up all those lunches, dinners, and entertainment expenses should you be audited. If you are, the IRS will be asking if the expenses were reasonable and ordinary for your type of business. They will also expect you to provide the following information:
- The date, amount spent, and location where the meal or event took place.
- The business purpose for the occasion, i.e. pitching a proposal to a new client
- An explanation of the business relationship between you and the person you entertained – name, company affiliation, etc.
Using a little common sense in meticulously recording and tracking your expenses will hopefully lessen your chances of securing an upfront and personal encounter with an IRS auditor.