The Documentation of Business Entertainment Deductions
The five things you need to record to avoid an audit
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"
Entrepreneur Editors' Picks
-
These Co-Founders Are Using 'Quiet Confidence' to Flip the Script on Cutthroat Startup Culture and Make Their Mark on a $46 Billion Industry
-
My 7-Year-Old Daughter Started Selling Eggs. Here's What She Taught Me About Running a Startup.
-
Why You Need to Become an Inclusive Leader (and How to Do It)
-
Career Transitions You Can Make in Your 40s and 50s
-
Billionaire Naveen Jain Is an Expert at Disrupting Fields He Has No Experience In. His Secret Sauce for Building Multi-Million Dollar Companies? 'You Have to Come as Naive.'
-
4 Principles to Develop Next-Level Leadership at Your Company
-
This Filipino American Founder Is Disrupting the Beverage Aisle by Introducing New Flavors to the Crowded Bubbly Water Market
