As we turn the page on another year, it’s a good time to start fresh with properly documenting certain business expenses. The areas where we most commonly see deficiencies are meals and entertainment and business use of vehicles. Below is a reminder of the documentation requirements of both categories.
- Meals and Entertainment
In order to substantiate a deduction for travel, meals, or entertainment, the following must be documented:
* the amount of the expense,
* the time and place of the expense,
* the business purpose of the expenses, and
* the business relationship to the person entertained.
One suggestion for organizing your meals and entertainment expenses is to purchase a calendar notebook where you can write on each date the required information to substantiate the deduction. You should also keep an envelope in the notebook where you can retain the required receipts and source documents.
Business Use of Vehicles
Whether you plan to deduct actual automobile expenses or use the cents-per-mile method, it is paramount that you track business mileage for each automobile with business usage. Again, start with a calendar where you can document daily business mileage and business purposes of trips. Most office supply stores also sell mileage logs, which are formatted to capture the required documentation information.
Refer to IRS Publication 463 – Travel, Entertainment, Gift and Car Expenses for more in-depth rules regarding substantiation and documentation.