Section 162 of the Internal Revenue Code allows a business taxpayer to deduct from its gross income its “ordinary and necessary” business expenses. In general, the expense must be 1) paid or incurred during taxable year; 2) for carrying on any trade or business; 3) a necessary expense; and be 4) an ordinary expense..

Business meals, travel, and entertainment expenses require substantiation because they represent expenses that may often be more personal in nature than for the conduct of business, and thus be the subject of abuse. There are generally four things needed to substantiate these types of business expenses. 1) The amount of the expense; 2) The time and place of the expense; 3) The business purpose of the expense; and 4) The business relationship between you and the person entertained/received your gift.

I generally recommend that the taxpayer keep their receipt and write these items on the back of the receipt. Some prefer to keep a diary or sales journal and record the expenses there. Expenses over $75 require a receipt for paid bill. Its important to keep good records and other contempouraneous documentaion to support the deduction shoudl it be questions in an audit or examination.