The tax law allows you to deduct travel and entertainment (T&E) expenses related to the active conduct of your business. Because IRS examiners consider these deductions highly suspect for abuse by taxpayers, they are often a target for audits. Therefore, your best defense to justify your expenses during an audit is to follow the strict recordkeeping requirements established by the IRS regulations.
Adequate records include an account book, diary, a log, statement of expense, trip sheets or similar types of records. Written documentary evidence (receipts, canceled checks or bills) of the event is strongly favored over verbal assertions. The documents need to include: the amount, date, place and essential character of the expense (not the canceled check by itself). At the same time, the IRS says you don’t have to record information in your account book or other comparable record if it duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. Err on the side of caution.
Key exceptions where documentary evidence is not required:
- You incur meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan and you’re using a per diem allowance method for this purpose.
- Your expense (other than lodging) is less than $75.
- You have a transportation expense for which a receipt is not readily available