Audit Proofing Your Meal and Entertainment Expenses
Items You Need to Document
Make sure you document the following 6 items to support your meal and entertainment expenses:
- Date and time of event
- Amount (including taxes and tip)
- Business purpose
- Name of business associate(s)
- Relationship of individual(s) (i.e. customer, client, potential customer, employee).
Tip: Get in the habit of jotting down the above six items on the back of receipts you receive from restaurants or other places of entertainment. For example, "01/15/2014, 2pm lunch with Jack Jones, customer; Figaro's restaurant; $75; discussed new line of widgets.
In addition to making notes on the back of receipts, it's important to keep a diary or calendar for each tax year documenting your entertainment expenses. The key to protecting your dining and entertainment deduction is having supporting documentation.
Entertaining at Home
You may deduct the cost of entertaining customers or clients at your home provided a business discussion occurs before, during, or after the meal. Make sure you document the purpose of the entertainment and have all guests sign a guest register.
Keep a record showing:
- Date of entertainment
- Business purpose of entertainment
- Entertainment costs
- Set up a guest register that includes the following columns:
- Name of guest (have them sign their name)
- Business Affiliation (e.g., member, V.P. Finance, etc.)
- Referred by
If non-business guests also attend your home entertainment, only deduct costs associated with business guests. Keep a record that shows your total costs for all guests. Then allocate the costs to business and non-business guests.
Boost Your Credibility if Audited
Let your records lend you credibility. For example, you should have a guest register for people to sign in. Your guest register should include at least three columns:
- One column for each guest to sign in
- One column where business guests may place a check mark
- A third column where nonbusiness guests may place a check mark.
If audited, the IRS will see that you accounted for both business and nonbusiness guests separately and did not attempt to deduct costs related to nonbusiness guests.