What do people hate worse than filling out an expense report? Answer: being audited by the IRS. While reporting all of your company’s travel & entertainment (T&E) expenses correctly will help you if you are audited, it will not help you avoid that all painful IRS audit.
At worst, employees think signing off on a credit card statement and submitting it to their boss for approval and then submission to the accounting department is sufficient. While it might be satisfactory to their boss and/or the owner of the company, it’s not going to be sufficient if the IRS comes knocking. Here’s what each employee should be doing to report his/her T&E expenses in a way that will be satisfactory to both the company and the IRS:
- As a general rule, attach a receipt for all expenses. However, for expenses under $25, if you have other documentation, such as a credit card statement or bank statements, a receipt is not absolutely necessary—although still recommended.
- For all entertainment expenses,
Provide the full name of each person that was entertained on that charge
Provide the name of the company they represent
Provide a brief description of the business purpose
- For all travel expenses,
Provide the name of the company or event that you were travelling to or from
The period between when the charge took place and when the credit card bill is paid or when you reimburse the employee is the best time to get this information from the employee. If you don’t get all of the information and are later audited by the IRS, they could disallow charges that are not fully and properly documented. Whether it’s having to pay additional income taxes or spending time collecting information that is years old, you can avoid those pains by getting it right the first time.