Guide to Deducting Business Entertainment

Keep good records

Hold on to all receipts, note who was there and what was discussed. For meals under $75, receipts aren't necessary, but you still need to have a note of the who, what, where, when and how much.

I recommend: You can go old school with a notebook or binder, but there is software to help you keep track of all the data. Iambic offers a product called Standard Time that you can download to your Palm Pilot to track entertainment expenses and client names. It integrates with QuickBooks and other financial software.

Set limits for your team

It's hard enough to manage your own entertainment expenses, but you need to make sure your employees also understand what's deductible and what the limits are.

I recommend: ExpenseWatch offers a travel and entertainment module allowing you to control and analyze your staff's entertainment spending and easily enforce spending limits.

Know if you're running up a red flag

When reviewing claimed expenses, the IRS classifies businesses by codes from the NAICS (North American Industry Classification System) based on income, then looks at national averages for each code.

I recommend: Find out your code and see what the range is for your particular income level. If you are within the range, the IRS will probably not come knocking.