• Insights
  • Who We Help
    •   Manufacturers
      •   System Integrators
    •   Wholesalers & Distributors
    •   Professional Service Firms
    •   International
      •   Expanding Outside the U.S.
      •   Expanding to the U.S.
  • Services
    •   Tax
      •   Tax Structure
      •   Tax Credits & Incentives
      •   Federal Tax
      •   State & Local Tax
      •   International Tax
      •   Personal Tax
      •   Other Tax Filings
    •   Advisory & Assurance
      •   Assurance Levels
      •   Reporting
      •   Employee Benefit Plan Audits
      •   Technical Accounting & Reporting
      •   Accounting Services
    •   Consulting
      •   Transaction Services
      •   Business Planning
      •   Succession & Exit Strategies
    •   International
      •   International Tax
      •   Foreign Direct Investment
      •   Global Expansion
      •   Transfer Pricing
  • Events
  • Careers
    •   Why C&M
    •   Students
      •   Campus Events
      •   Internships
      •   Reach Beyond Program
    •   Experienced Professionals
      •   Team member profile videos
    •   Opportunities
  • About Us
    •   How We Help
      •   Service Approach
      •   Affiliations
      •   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Social Feed
    •   Our Story
  • Contact Us
CHANGE COUNTRY:
  • United States
  • Deutschland
  • 中国
  • Newsletter
  • Client Login
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
    • Most Recent Insights
  1. Home
  2. Insights
  3. Recordkeeping for Reimbursements and Meals & Entertainment

Recordkeeping for Reimbursements and Meals & Entertainment

Posted by Margaret Amsden on June 28, 2016

Margaret Amsden

During the ordinary course of business, the practice of reimbursing employees for expenses, as well as deducting expenditures related to meals and entertainment, is common. A clear understanding of the rules will improve your ability to defend your expenses should they come into question with the Internal Revenue Service (“IRS”).

What Are the Rules?

Internal Revenue Code (“IRC”) §162 allows expenses to be deducted that are:

  • “Ordinary and necessary” in running a trade or business, and
  • “Directly related to” or “associated with” the trade or business.

IRC §274 requires recording “at or near the time” of the expense in order to be deemed timely; IRC §274(d) disallows the deduction of expenses that are not properly documented; and IRC §274(n)(1) caps the amount of the deduction to 50 percent of expenses.

What Does the IRS Consider Adequate Records?

Records need to address the following criteria to be acceptable:

  • Amount and description of each expense
  • Time and location of the entertainment and/or meal
  • Business intent and the expected benefit from the business expense
  • Description summarizing the topics discussed
  • Disclosure of the business relationship to the person or people entertained

Examples of proper documentation include:

  • Receipts
  • Cancelled checks
  • Invoices

Who Maintains the Records?

Depending on the type of arrangement, the burden of recordkeeping will rest on the employee or the employer.

There are two types of arrangements:

Accountable Plans

  • Employer expected to keep records
  • Contain the following characteristics:
    • Business Connection – expenses made on behalf of employer for employer benefit
    • Substantiation – follows documentation requirements
    • Returning Excess Amounts – employees return per diem not spent on business activities
  • Non-accountable Plans
    • Any plan not meeting the criteria of an accountable plan
    • Employer treats advances or reimbursements as compensation on Form W-2
    • Employer withholds portion of the compensation for payroll purposes
    • Burden shifts to employee to prove the deductibility and the deduction is subject to the two percent adjusted gross income floor

Proper documentation provides the best defense to substantiating deductions to IRS. Failure to adhere can result in disallowed expense deductions as well as penalty assessments from the IRS. Please contact us for assistance in determining the deductibility of expenses or consultation to improve your recordkeeping policies.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Shareholder

Contact Margaret   |   Read Margaret's bio

related news

Industry 4.0 is Driving Transformation in Finance and Accounting

Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, has watched the advanced and automated technologies used by manufacturers increasingly…

Read full story

Maximizing the Tax Benefit of Charitable Giving

With the tax law changes that became effective in 2018, the average person has potentially lost the benefit of their charitable contributions.  However, there are several very straightforward options that…

Read full story

Leadership From Around the Globe

A few weeks ago I traveled to Rome, along with my fellow shareholder Sue Tuson, to attend the PrimeGlobal World Conference. PrimeGlobal is one of the five largest associations of independent…

Read full story

Considering Expanding to Mexico? Learn the Impacts of Taxes and Personnel Expenses

In our previous updates, we’ve reviewed two main types of taxes and related costs which may influence timing when expanding to Mexico.  These include: All the taxes related to the…

Read full story

Industry 4.0: It’s Not Just for Manufacturers!

The term Industry 4.0 conjures up images of the high tech factories filled with connected robots performing work previously performed by people.  However, the technologies that are enabling this transformation…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • About Us
  • Accounting
  • Assurance
  • Careers
  • China
  • Clayton & McKervey
  • Consulting
  • Entrepreneurs
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • International
  • Manufacturing
  • Mexico
  • Press Releases
  • Professional Services
  • System Integrators
  • Tax
  • Transactional Services
  • Transfer Pricing
  • Wholesale & Distribution

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • David Van Damme
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Nina Wang
    • Robert Dutkiewicz
    • Sarah Russell
    • Sue Tuson
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Todd Goodman
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

Recordkeeping for Reimbursements and Meals & Entertainment

Posted by Margaret Amsden on June 28, 2016

Margaret Amsden

During the ordinary course of business, the practice of reimbursing employees for expenses, as well as deducting expenditures related to meals and entertainment, is common. A clear understanding of the rules will improve your ability to defend your expenses should they come into question with the Internal Revenue Service (“IRS”).

What Are the Rules?

Internal Revenue Code (“IRC”) §162 allows expenses to be deducted that are:

  • “Ordinary and necessary” in running a trade or business, and
  • “Directly related to” or “associated with” the trade or business.

IRC §274 requires recording “at or near the time” of the expense in order to be deemed timely; IRC §274(d) disallows the deduction of expenses that are not properly documented; and IRC §274(n)(1) caps the amount of the deduction to 50 percent of expenses.

What Does the IRS Consider Adequate Records?

Records need to address the following criteria to be acceptable:

  • Amount and description of each expense
  • Time and location of the entertainment and/or meal
  • Business intent and the expected benefit from the business expense
  • Description summarizing the topics discussed
  • Disclosure of the business relationship to the person or people entertained

Examples of proper documentation include:

  • Receipts
  • Cancelled checks
  • Invoices

Who Maintains the Records?

Depending on the type of arrangement, the burden of recordkeeping will rest on the employee or the employer.

There are two types of arrangements:

Accountable Plans

  • Employer expected to keep records
  • Contain the following characteristics:
    • Business Connection – expenses made on behalf of employer for employer benefit
    • Substantiation – follows documentation requirements
    • Returning Excess Amounts – employees return per diem not spent on business activities
  • Non-accountable Plans
    • Any plan not meeting the criteria of an accountable plan
    • Employer treats advances or reimbursements as compensation on Form W-2
    • Employer withholds portion of the compensation for payroll purposes
    • Burden shifts to employee to prove the deductibility and the deduction is subject to the two percent adjusted gross income floor

Proper documentation provides the best defense to substantiating deductions to IRS. Failure to adhere can result in disallowed expense deductions as well as penalty assessments from the IRS. Please contact us for assistance in determining the deductibility of expenses or consultation to improve your recordkeeping policies.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Shareholder

Contact Margaret   |   Read Margaret's bio

related news

Industry 4.0 is Driving Transformation in Finance and Accounting

Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, has watched the advanced and automated technologies used by manufacturers increasingly…

Read full story

Maximizing the Tax Benefit of Charitable Giving

With the tax law changes that became effective in 2018, the average person has potentially lost the benefit of their charitable contributions.  However, there are several very straightforward options that…

Read full story

Leadership From Around the Globe

A few weeks ago I traveled to Rome, along with my fellow shareholder Sue Tuson, to attend the PrimeGlobal World Conference. PrimeGlobal is one of the five largest associations of independent…

Read full story

Considering Expanding to Mexico? Learn the Impacts of Taxes and Personnel Expenses

In our previous updates, we’ve reviewed two main types of taxes and related costs which may influence timing when expanding to Mexico.  These include: All the taxes related to the…

Read full story

Industry 4.0: It’s Not Just for Manufacturers!

The term Industry 4.0 conjures up images of the high tech factories filled with connected robots performing work previously performed by people.  However, the technologies that are enabling this transformation…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • About Us
  • Accounting
  • Assurance
  • Careers
  • China
  • Clayton & McKervey
  • Consulting
  • Entrepreneurs
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • International
  • Manufacturing
  • Mexico
  • Press Releases
  • Professional Services
  • System Integrators
  • Tax
  • Transactional Services
  • Transfer Pricing
  • Wholesale & Distribution

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • David Van Damme
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Nina Wang
  • Robert Dutkiewicz
  • Sarah Russell
  • Sue Tuson
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Todd Goodman
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login
  • Social Feed

Social

  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2019 Clayton & McKervey