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Merlo
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Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My former accountant used to include for a deduction a set

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My former accountant used to include for a deduction a set amount of “Un-receipted business expenses @$75 a day” , and told me there was no question as to the legality, that it's "right there in the tax code"

My new accountant says this was a very questionable practice. Now I owe a LOT of money in taxes that I never used to owe.

Is there a gray area here? Is my new accountant being over zealous or was my former one subjecting me to questionable practices?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello Customer,

 

There is no "grey" area here. I am quite sure that what your former accountant was referring to was the meals and entertainment deduction. It is not just a general business expense that is allowed.

 

The IRS does not require a receipt when your business meal or entertainment expense is less than $75 per expense.

 

You still must maintain a record of the following five facts related to the deductible event:

 

1) WHO did you eat with or entertain? i.e. the names of the people and the nature of their business relationship to you
2) WHEN did the entertainment occur? i.e. the date
3) WHERE did the entertainment occur? i.e. the name of the restaurant or other venue
4) WHY did you meet? i.e. a description of the business purpose of the meal or event
5) HOW MUCH did you spend? i.e. the dollar amount

 

You should record these five facts in a log. Having met the IRS substantiation requirements, you can then throw away the receipt if you wish. In the event of an audit, you'll be covered.

 

The expense applies to meals and entertainment expenses incurred when you are with someone with whom you have an existing or prospective business relationship, regardless of whether you are in town or in overnight travel status.

 

While receipts are not required for these expenditures of $75 or less, they still should be legitimate expenses that you incurred. So for that reason I would have to say that your former accountant was being a little over zealous with these deductions -- particularly if he was deducting this same expense for every day of the work week. If you would happen to be audited by the IRS, I think they would find it very questionable that you had an entertainment expense of $75 every day and not one single receipt for any of them.

 

If this was helpful please press the Accept button. It is the only way we receive any credit for helping with these questions.

 

Thank you

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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