Substantiation for Business Travel, Meals and Entertainment Expenses
Many businesses incur travel, meals and entertainment expenses as an ordinary course of business. However, these same businesses risk disallowance of these expenses as tax deductions due to poor recordkeeping. The IRS requires documentation in order to substantiate that the expense has a legitimate business purpose. Absent the substantiation, the IRS may completely disallow the expense. Here is a brief overview of the substantiation rules relating to business travel, meals and entertainment expenses.
The IRS requires that each expense involving travel, meals and entertainment be accompanied by the following documentation in order to meet the substantiation requirements.
- The amount of expense,
- The time and place of the expense,
- The business purpose of the expense, and
- The business relationship to the taxpayer of the individuals being entertained.
In addition to the requirements shown above, a business is also required to keep documentary evidence, such as a receipt, for any travel, meal or entertainment expense that is $75 or greater.
- Ex: A hotel receipt containing the name, location, dates of travel, purpose of the travel and breakdowns of amounts incurred for lodging, meals, and telephone should satisfy the substantiation requirements.
- Ex: For meals, a receipt from a restaurant containing the name and location of the restaurant, the date, amount, number of people, business purpose of the meal and the business relationship of the individuals served should satisfy the substantiation requirements.
Please be aware that the IRS and state revenue agents are being very aggressive during tax return audits and are strictly enforcing these substantiation requirements. Consider keeping a log or account book to substantiate these expenses. Be sure to update the log or account book on a timely basis to ensure adequate records are kept.
If you have additional questions about the substantiation requirements, please contact our office at 952.979.3100. We would be happy to discuss these with your further.
Repeal of Expanded 1099 Requirements Signed Into Law
On Thursday, April 14, 2011, President Barack Obama signed H.R.4, the “Comprehensive 1099 Taxpayer Protection of Exchange Subsidy Overpayments Act of 2011″. This new law repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income which was enacted as part of last year’s Small Business Jobs Act.
Click here for a full text article on the new law.
Create an Employee Retention Strategy Today
The outlook for hiring employees is improving, making employee retention one of the top priorities for business owners. Over the past few years, businesses have been challenged during the economic downturn. Management teams have worked hard to streamline processes, save dollars from the budget and look for ways to be competitive in the marketplace. Throughout this time, hiring and retaining staff has been put on the back burner. Now, all indications lead us to believe that employees have their eye on the economic recovery with one goal in mind: getting a new job. As the job situation improves, small to mid-size businesses could be the hardest hit. This adds a new challenge to business owners and one that needs attention before it is too late.
Post Tax Return Filing To-Do-List
You filed your 2010 tax return and are ready to forget about taxes until next year… Not so fast! Now is a great time to take a moment to evaluate your financial situation and take a look at things you might consider doing to better your situation.
Click here to view an article by Ron Lieber of The New York Times. The article includes a checklist of 31 items that can help you better your financial goals.
Social Networking & Your Business
Are you fed up with hearing about Twitter, Facebook, YouTube and LinkedIn? Will you be glad when this “fad” is over with? Do you avoid discussions about using social networking for business?
Much like when email first came into existence, it is natural to disregard social networking’s power and influence. It is natural to see the negative attributes and not the benefits. For many of us, social networking is foreign territory and it is difficult to see its impact on our business.
