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IRS Rules for Recording Business Expenses: Travel, Transportation, Meals and Entertainment A clear guide for business owners, self employed, independent contractors, freelancers, managers, accountants and others about IRS requirements for adequate recordkeeping of employee / contractor expenses.

Adequate recordkeeping is important for both preventing an audit and being prepared in the event of an audit. Overall adequate recordkeeping is good for facilitating compliance with Uncle Sam. A great solution for adequate recordkeeping of expenses is Falcon Expenses, our well reviewed fully mobile solution for expense tracking and reporting, check it out when you have a chance. Detailed in this post are the IRS rules for recording business expenses.

Adequate records require that a log or the expenses should be kept along with documentary evidence (i.e. such as receipts) of each individual expense. However, there are a few exceptions, expenses under $75 that are not lodging expenses do not require a receipt or you have a transportation expense that does not have a readily available receipt. Each expense record is typically adequate if it contains the amount, date, place and essential character of the expense.

There are a few major expense types that the IRS has specified recordkeeping requirements: meals, entertainment, travel, transportation and gifts.

Meals

A restaurant receipt (for amount over $75 dollars) is typically enough, as long as it contains the following:

  • Date and amount of expense.
  • Name and location of restaurant.
  • The number of people served.
  • Business Purpose: details the business benefit, or expected benefit to be gained.
  • Relationship: the name, titles or other designations about the recipients is detailed in the record that shows the business relationship to the recordkeeper.

Transportation

Transportation expenses include vehicles, taxis, buses, rail, air, etc. The IRS specifies the following as requirements for adequate recordkeeping:

  • Date and amount of each expense.
  • Vehicle expenses include the cost of the car, any improvements, mileage logs for each business use and total miles for the year.¬†For more details on vehicle expenses please go review the Falcon Expenses resources post, How to Maximize Business Use Car Tax Deductions.

For details on what qualifies as a tax deductible business transportation expense check out this post, What Qualifies as Tax Deductible Business Transportation Expenses.

Entertainment

Entertainment expenses are expenses that are associated with the entertainment of clients, partners, vendors, etc., such as dinners, drinks, and sporting events. The expenses associated with entertainment could include incidentals such as taxis, meals and telephones. The recordkeeping requirements for many of these expense types are already described in this post. The IRS also requires that the following records are kept for entertainment expenses:

  • Date and amount of each separate expense.
  • Name and address / location.
  • Type of entertainment, if not otherwise apparent.
  • Business Purpose: details the business benefit, or expected benefit to be gained.
  • Relationship: the name, titles or other designations about the recipients is detailed in the record that shows the business relationship to the recordkeeper.

Travel

Travel expenses include expenses employees or independents incur while traveling for business purposes. These expenses include travel, lodging, meals, entertainment, etc. The recordkeeping requirements for many of these expense types are already described in this post. The IRS also requires that the following records are kept for entertainment expenses:

  • Date and amount of each separate expense.
  • Dates left and returned for each trip, and number of days spend on business.
  • Destination or area of travel (name of city, town)
  • Lodging: Name and location of hotel, separate (itemized) amounts for charges such as lodging, meals, and telephone calls.
  • Business Purpose: details the business benefit, or expected benefit to be gained.

Gifts

Often during the holidays, businesses give clients and others gifts. The IRS specifies the following as adequate recordkeeping requirements for gifts:

  • Date and amount of the gift.
  • Description of the gift.

In the Event of Incomplete Records

In cases where complete records of the expense are not available, the information of the expense that is not available must be proven with:

  • The written or oral statement, from the individual incurring the expense, containing specific information about the information that was not available.
  • Other supporting evidence that is sufficient to establish the information that is missing.

Source: IRS Publication 463, Ch 5, Recordkeeping

About Falcon Expenses, Inc.

Falcon Expenses is an iOS solution for expense tracking and management. Scan receipts, we type merchant, date and amount, auto-track mileage expenses via GPS and log billable hours with an integrated timer. Quickly organize expenses by time period, project or client and easily prepare reports for email to anyone in PDF or spreadsheet formats, all from your phone. Use for reimbursements, taxes, record keeping or invoicing. Falcon Expenses is great for professionals, freelancers, realtors, business travelers, truckers and more. Find out more, here.