An expense receipt is a document containing details on hospitality expenses that have been carried out for business purposes, e.g. a business meal. Technically speaking, entertainment expense receipts belong under the category of supporting documents, which are normally provided by an external party, in this case, the restaurant. Tips and service charges are also subjected to this 50% rate, as are the fees for hiring a room and any parking charges. If you wish to fully comply with accounting and tax standards then it is imperative that you are in possession of all the correct expense receipts and paperwork.
According to IRS Publication 463 there are two different methods for assessing whether a meal and entertainment expense is business-related: the directly related test and associated test. Directly related means that the main purpose of the entertainment was to actively conduct business, which you then engaged in during the course of the event, and that you had an expectation of gaining future income or another business specific benefit as a result of the entertainment. In other words, the main purpose of the entertainment was the active conduct of business. There is also the option of the associated test, wherein there were still clear business purposes for organizing the event, or that the event took place immediately before or after a substantial business-related discussion. Substantial, in this case, means that it involved discussion on a business transaction or some other activity that is specific to your company. The IRS does not specify how long such a meeting needs to be and also makes sure to point out that it is not necessary for business to be discussed during the meal or entertainment.
As mentioned above, along with food and transport, things like tips, coat check, as well as cover charges for admission into a nightclub can also be deductible along with entertainment expense receipts. However travel and overnight costs are not included – although it may be worth bearing in mind that these could be subject to the Department of Transport’s “hours of service” legislation. Of course, if it is the case that you are hosting guests in your office space then coffee and snacks, etc. are also tax deductible.