How to Make Your Business Meals Deduction Audit-Proof

Nearly everyone enjoys eating, so an obvious and fun way to entertain your business prospects and to motivate your employees is with food.  However, if your record keeping is inadequate or simply incorrect, you could run into trouble in an audit.  There are several important requirements you must meet in order to deduct your business meals with confidence. 

First, you must have a legitimate business discussion. The meal should have been arranged for the purpose of conducting business, and your client or employee must reasonably expect a business discussion.  If you happen to talk about your business with your waitress, your meal would not be deductible.  A deductible business meal involves a pre-arranged meeting with a substantial business discussion.

Second, the meal should take place in surroundings favorable to having a business discussion.  If you decide to meet at a noisy nightclub, the setting would be inappropriate for a decent conversation.

Third, you need to be able to answer the following questions:

  1. Who was entertained?
  2. Where did the meal take place?
  3. When did the meal take place?
  4. Why did the meal take place? (This is the most important.  You need to be specific about what you discussed and why you met.  Simply saying, “Dinner with a client” is not enough information.)
  5. How much did it cost?

You can answer most of these questions by keeping the receipt.  You don’t need to keep receipts for meal expenses that are less than $75, but auditors love to see receipts, and you can avoid most problems in an audit if you have them.  A simple way to record answers to these questions is to write them on the back of the receipt after your meal and then to record them in your tax organizer.

These are some simple tips to help you audit-proof your deductions for business meals.  Please consult your tax advisor if you have any questions that specifically relate to your business.

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