J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Recordkeeping Requirements

Business expenses can be disallowed unless there is adequate substantiation for the expenses claimed. For travel and entertainment expenses, there are 2 main ways to prove costs: actual substantiation, or reliance on a per diem rate. First look at actual substantiation; then consider how recordkeeping can be simplified with the use of per diem rates.

There are a number of elements to substantiate for each business expense. In general, to substantiate each item you must show the amount, the time, the place, the business purpose for the travel or the business relationship with the persons you entertain or provide gifts to, and, in some cases, a description of the item. The exact type of substantiation required depends on the item of business expense.

Travel

You must show the amount of each separate expense for travel, lodging, meals, and incidental expenses. You can total these items in any reasonable category. For example, you can simply keep track of meals in a category called daily meals. You must also note the dates you left for the trip and returned, as well as the days spent on the trip for business purposes. You must list the name of the city or other designation of the place of the travel, along with the reason for the travel or the business benefit gained or expected to be gained from it.

While this may sound like a great deal of recordkeeping, as a practical matter hotel receipts may provide you with much of the information necessary. For example, ...