Travel & Entertainment Deductions
Some of the most powerful deductions available to any business owner are travel and entertainment expenditures. Those expenditures provide money back in your pocket and help “move the line” from personal to business expenses…IF they are handled properly.
Beware, travel expenses are among the most highly reviewed expenses by the IRS; whether in computer audit scenarios or live audit situations.
How do we ensure that our travel, lodging, meals and entertainment expenditures can be deducted?
1. Establish the business purpose. If the trip is personal, the IRS will rightly disallow the expenses as deductions. The business purpose must be clearly established.
2. Document the expenditures. Proper documentation is at the invoice level. The credit card entry is not enough. You must establish that the expenditure, even on a business trip, is business related. For example, if you take your family to Orlando for a conference and everyone visits Disney World while you are there, the Disney World expense will not be treated as a business expense by the IRS; that expenditure is personal. To properly document the business purpose, write the business purpose on the receipt. If you tore a hole in your shirt and you need a new one, write down why you are buying a shirt (normally a personal expense) and treating it as a business expense.
3. Be modest, not excessive in your expenditures. Do not rent a Ferrari when a Ford will do. The IRS will rightly disallow excessive, unnecessary expenditures. You do not have to eat at McDonald’s every meal. But, if you are going to Ruth Chris every night, you better have a good reason. Just be reasonable and document, document, document.
There are other issues, but these are the big ones. If you do these things, most of the time your expenses will be accepted.
Call me with any other questions. Thanks and God bless.
Ralph Eldridge, CPA
The Eldridge Group