KEEP THESE DOS AND DON’TS IN MIND WHEN DEDUCTING BUSINESS MEAL AND VEHICLE EXPENSES
The IRS pays close attention to your deductions for business meals and auto expenses. Senior manager at 415 Group, Brian Raber, CPA, MT, explains why it’s imperative to keep accurate records throughout the year—no matter how many aspects of your business you find yourself juggling.
Vehicle and meal expenses are quite often challenged by the IRS. Unfortunately, they're aware of how easy it is to forget to log it in real time and/or lose track of documentation.
For business owners focused on starting and or growing their business, these details often get lost or forgotten. But it’s important to keep detailed records using methods that work best for you. You can document them electronically or on paper—either way, keep them safe and available to access at the end of the tax year.
If you’re fearful of forgetting to log your expenses, set up a weekly reminder so you’re sure to document what you spent that week.
What happens if you didn’t track expenses very well throughout the year?
If you need to backtrack, start by analyzing the previous four weeks of activity. If it is consistent year-round, you and your tax advisor can make calculations. These estimates will come with some risks, but it’s the best you can do having not contemporaneously documented them.
But, what happens if you did keep detailed records and they get destroyed by a fire, flood, or other disaster?
Sometimes an oral or written statement—along with other supporting evidence if you don’t have complete records—could suffice. Sampling could also help support similar situations. For example, if you take a client to lunch each month, you might not need to show receipts for the entire year.
If all else fails, you might be able to reconstruct some records if the originals were lost or damaged. For example, you may have business meeting details saved in your electronic calendar.
One more point to note: There is a fine line between business and personal expenses. Do not try to deduct personal expenses on your business’s tax return.
At 415 Group, we’d love to discuss your business with you and help you figure out the best path forward, whether that’s organizing the previous year’s expenses or devising a better plan for documenting future expenses.
Contact us today to get started.