Business meals, travel and the receipts that survive an audit

You can generally deduct half of a business meal, and the ordinary and necessary costs of traveling away from home for work. What decides both is not the receipt but whether the trip and the meal meet the tests, and whether your records can show it.

What "away from home" actually means

Distance is not the test. Your duties have to take you out of the general area where your tax home sits, for substantially longer than an ordinary working day, and the trip has to be long enough that you need sleep or rest before you can carry on working. Dozing in the car does not meet that rest requirement.

Your tax home is generally the regular place you work from, wherever the family house happens to be, and it takes in the whole city or area your work is located in. Someone with no regular workplace and nowhere they regularly live is an itinerant, whose tax home follows the work and who gets no travel deduction, never being away from home to begin with.

Temporary, indefinite, and the one-year line

Travel for a temporary assignment away from home is deductible; travel for an indefinite one is not, and anything expected to run past a year is indefinite. The trap is timing: the expenses stop being deductible when your expectation changes, not when the twelve months are up.

The half you can deduct on a meal, and the conditions

Generally only 50% of a business-related meal comes off, unless an exception applies. The conditions travel with it. The expense has to be ordinary and necessary. You, or somebody who works for you, has to be present. The food and drink must not be lavish or extravagant, which is judged on the facts rather than against a fixed price. And the person across the table can be a customer or client you already have, or one you hope to win, a consultant, or another business contact of that sort.

Entertainment, amusement and recreation are a different story: no part of them is deductible any more, and only the food and drink can survive an evening that mixed the two.

Whether your own meals on a trip are deductible at all depends on the away-from-home test above, while a meal with a business contact is governed by this rule whether or not you traveled anywhere to eat it. One exception on the rate: someone subject to the hours of service limits set by the Department of Transportation deducts eighty percent instead.

Per diem instead of receipts

The standard meal allowance is the alternative to adding up actual costs — a set daily amount for meals and incidental expenses, varying with where and when you travel. It does not excuse you from records: the time, the place and the business purpose of the trip still have to be provable. It is open to the self-employed as well as to employees, whether or not anyone reimburses you. Incidental expenses here means the tips and fees that go to hotel staff, porters, baggage carriers and staff on ships, and it excludes laundry, dry cleaning, lodging taxes and calls.

Two fixed amounts sit alongside it. There is an incidental-expenses-only method worth $5 a day, usable only if you paid for no meals at all that day, never on a day you use the meal allowance, and not cut by the half limit. And there is a special allowance of $80 a day for transportation industry work, or $86 outside the continental United States, open only where the work itself moves people or freight by air, barge, bus, ship, rail or truck and regularly sends you through areas with different rates.

The records the IRS actually asks for

Keep the proof in whatever form suits you: an account book, a diary, a log, a statement of expense, a trip sheet. Alongside it keep documentary evidence, which generally means a receipt, a canceled check or a bill. Three narrow situations excuse it. Where you account to an employer under an accountable plan using a per diem method covering meals or lodging. Where an expense other than lodging comes to under $75. And where a transportation expense simply has no receipt readily available.

Five elements are what you are proving: the amount, the time, the place or description, the business purpose, and the business relationship. On travel, that last element drops out. Purpose and relationship can both be established by circumstantial evidence rather than direct.

Documentary evidence is ordinarily adequate if it shows the amount, the date, the place and the essential character of what was bought. A hotel bill should carry the hotel's name and location, the dates you were there, and lodging, meals and telephone charges broken out separately. A restaurant bill should carry the restaurant's name and location, how many people were served, and the date and the amount.

Write it down at or near the time. A log kept weekly still counts as timely; one assembled months later carries less weight.

One more limit, and what to do with all of it

Business gifts are capped at $25 per person for the year, given directly or indirectly, and a gift routed through a company but meant for one person's benefit counts against that person's cap.

Reconcile the log against the card statement monthly, and note the business purpose on the day. A canceled check with the payee's bill establishes what something cost; on its own it proves nothing, about the cost or the reason. Schedule C is where the deduction lands, the home office and mileage covers the car and the room, and what an audit looks like covers what these records are for.