Tax Tips: Deducting travel and entertainment expenses

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Meals, entertainment, and travel expenses might be tax deductible for small business owners and some employees. Let's start with small business owners. If you spend money on meals, entertainment, or travel during the course of your business, you can take a deduction on your Schedule C or business tax return as long as you meet certain requirements. An employee may be able to deduct their expenses as an "unreimbursed employee expense" if they spent the money, met all the tax requirements, and were not reimbursed by their employer for the expenses.

The requirements for business owners sand employees: First, there must be a bona fide business purpose to the deduction. That means you might be entertaining a potential client, or you're traveling to a business meeting, or you had to stay in a hotel during a business trip. You also must keep records of the expense, including receipts and information about the business purpose of the expense. Travel expenses are fully deductible, but meals and entertainment expenses are only 50% deductible on your tax returns.

Taxpayers can get in trouble when they get too aggressive or claim items that are outside the IRS rules. Taking yourself to lunch one day isn't a deductible meal, unless you are traveling for business. Going on a personal vacation, and taking a business file along to look at doesn't turn it into a business trip. The IRS is on the lookout for taxpayers cheating on these items, because they have long been abused by business people. Make sure you have all your records in order, and that you aren't deducting items which don't qualify.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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