According to Ed Sturm, Tax Managing Director at Deloitte Tax LLP, companies are generally doing a decent job in keeping up with book accounting for travel, meal and entertainment expenses. "At the same time, when referring to the correct tax answer, it’s not uncommon to hear someone say, ‘Well, M&E is just 50 percent of that number,’” says Sturm. “However, where companies face difficulty is finding that number.”
Why is this so hard? Often, these expenses make up thousands of transactions in an enterprise-size company over a year and are typically low dollar amounts per transaction. “The IRS allows companies to use statistical sampling to come up with that number. Although, if companies can get better data to put in that formula, they can potentially save money and be better prepared to defend on audit.”
“In the view of the IRS, the taxpayers are required to use whatever systems and processes are out there to comply with the tax rules. So, whether it’s electronic expense reporting or employers following up with the employees to make sure expense reports are completed, the onus is always on the employer,” says Sturm.
In summary, the IRS expects companies to have exact documentation to substantiate each transaction and come up with a reliable amount that is deductible for tax purposes.
How much time would it take to your company gather this data now? Is it even possible for your team to pull this reporting?
To learn more on this topic: Listen to Sturm as he speaks on this topic during a webinar with Concur.