According to tax expert and former IRS attorney Sandy Botkin, you don't need receipts for entertainment if it's under $75 per expense. But when you do entertain, the IRS requires certain documentation. So with entertainment, you have to write down what I call the four Ws and an H:
- Who: name and occupation
- Where: We went to Greasy Lloyd's restaurant.
- Why: Why did you take that person out? And here's one of the biggest mistakes self-employed people make. You must be specific in the documentation. The word "prospect" isn't specific enough. "Good will" isn't specific enough. Specific would be "try to get a referral" or "talked with a reporter about my book." Don't be general.
- What: What was the date, and was it for breakfast, lunch or dinner?
- And finally, how much.
If you write down all five things, you'll never have to worry about an IRS audit again. If you leave out any one of the five, your deductions will be disallowed and the IRS will hit you with a 75 percent penalty, plus Interest.
Source: "Tax Expert Sandy Botkin"