Keeping Track of Your Meals and Expense Deductions is Important

In a recent case, the Tax Court denied all of a Florida taxpayer’s meals and entertainment expenses due to poor recordkeeping. (Windham, TCMemo 2017-68)

If you are audited by the IRS relative to your business meals and entertainment deductions, you will need to show the following to keep the deductions:

  • The amount of the expense;
  • The time and place of the expense;
  • The business purpose of the expense; and
  • Your business relationship with the individuals being entertained.

Any travel and entertainment expense over $75 should be backed up with a receipt.

If you want to deduct cell phone expenses, the IRS expects you to be able to prove which calls are business related. You can do this with a log or a detailed bill from the cell phone company on which you have indicated the business purpose of any relevant calls. (In the real world, I have not met anyone who keeps a log of their business calls. The Cohan rule allows you to allocated business from personal expenses without documentation if you can provide credible evidence of the expenses.)

In the Windam case, the taxpayer was a stockbroker who claimed $10,000 worth of client lunches and dinners during 2010. She kept 100 receipts and wrote on them the names of those who she entertained, but did not keep track of the business purpose. The taxpayer also claimed that some of the receipts were in connection with her real estate rental business and volunteer activities.

She also deducted $600 of cellphone calls but did not provide any evidence or testimony about how many minutes were used for business, charity or personal use.

The taxpayer lost all the deductions in this case because of poor recordkeeping.