Heightened Substantiation Requirements for Travel and Meal Expenses 

 

Travel expenses incurred while on business are deductible to a business.  These expenses include meals, lodging, local transportation, incidentals, and flights.   

 

The Internal Revenue Code requires the following elements to be proven for travel expenses:

 

Amount. The amount of each separate expenditure while traveling away from home must be substantiated.  These expenses can be categorized as transportation, lodging, airfare, meals, gas and oil, and taxi fares.

   

Time.  Dates of departure and return for each trip away from home spent on business should be documented.  This should include days actually spent on business during the trip. Especially if you incorporate an element of personal vacation into a business trip.    

 

Place.  Destinations or locality of travel, described by city or town or similar designation should be documented.   

 

Business Purpose.  Document the business reason for the travel or nature of the business benefit derived from the business trip.   

 

The IRS has issued Regulations (1.274-5T(c)) that outline best practices for keeping sufficient records of travel expenses. 

 

The importance of keeping contemporaneous written records cannot be overstated.  This means documenting the above stated elements of the expense to be proven as close to the time of the actual occurrence as possible. 

 

As an example, if I travel to another city to see a client and take him or her out for dinner to discuss business, I should not only keep the receipt for dinner, but also write on it the name of the client and the business purpose for which we were meeting.  Then, as soon as possible I should scan the receipt into my cloud storage platform because paper receipts can be damaged or will fade over time and might not be legible by the time you need to produce it for an IRS agent. 

 

With all travel expenses, we advise keeping a written log, similar to a diary, of the reason for the business travel in addition to receipts. 

 

In case of an audit, contemporaneous, complete, accurate documentation is king.