When it comes to an audit, you should always be prepared with the proof for all expenses that your company has incurred. Expenses incurred on entertainment are thoroughly checked by the Internal Revenue Service auditor because they know that many businesses tend to include personal entertainment expenses with their business entertainment expenses. Therefore it’s critical to provide entertainment proof for audit. You should maintain your books and records in such a way that you do not give the IRS a reason to suspect that you have included personal entertainment expenses with your business expenses.
As an example, if you take a client out on lunch to discuss business, in general, the entertainment expense is deductible. However, you need to prove that the person you had lunch with was someone you just finished doing business with, or there is a future potential for making money. When it comes to proving your entertainment deduction in an IRS audit, consider the following…
Items To Document Expenses For Entertainment Proof For Audit:
- You have to specify the kind of business relationship that you have with the person that you have entertained. List the names, titles, company, location, etc. of the people and place of entertainment, Write down any other details that you believe would help in authenticating the business relationships.
- You will have to name the location and address of the place where the entertainment took place. Keep the receipt. It will serve as evidence that the entertainment took place in that location, the date, and the amount spent.
- You must explain the business purpose of the meeting. Please consult a tax guide or call us at 713-774-4467.
- Even though certain small amounts don’t have to be proved, it’s important to keep all receipts.The other items such as business purpose, person entertained, time and place should be proven.
Use a diary to Prove You Entertainment Expenses:
You should record all details in a diary. If the IRS sees that you took the time and expense to carefully document your entertainment expense deductions then they will be more likely to except your evidence.
If you need more information on entertainment proof for an IRS audit, we are here to help you.
- If you are considering hiring us, call Joe Mastriano, CPA 713-774-4467.
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