Understanding Pest Control Business Tax Deductions: IRS Regulations

Pest Control Business Tax Audit Tips: Protect yourself by following these guidelines!

The IRS Can Disallow Certain Deductions during a Tax Audit and T&E Is Where You Can Really Get Hurt! Expenditures for meals, entertainment, amusement, and recreation are not deductible unless they are:
1.    Directly related to, or associated with, the active conduct of your business and
2.    You keep a written or electronic log made near the time that you make the
expenditure, recording the time, place, amount and business purpose of each

Even if you pass those two tests, only 50 percent of meal and entertainment expenses are deductible. If you write-off business meals through your company and there is a proper reimbursement arrangement in place, you won’t be charged with any imputed income for the half that is not deductible, but your company will be limited to a 50 percent write-off. If the deduction is disallowed at the company level then the write off becomes taxable personal income to you as well as increasing the amount of income to the company. This could have tax consequences to the company as well depending on the corporate structure.

For meal and entertainment deductions, on each credit card receipt, make sure the following are clearly written:

  • Who was present (their names and their business relationship)?
  • What business was discussed (immediately before, during or immediately after the meal/entertainment)?
  • How was this related to your business? What was the purpose?
  • Where was the business discussion held and the meal consumed (name and location of restaurant)?
  • When was the meal/entertainment and business discussed (exactly on what date)?
  • Exact cost of the meal/entertainment?

Travel, Meals and Entertainment deductions are usually the areas where most business owners get nailed during an audit. While the deduction is permissible, you need to have the proper back up. Reduce your chances of a tax audit contact us to maintain your books and guide you to meet and exceed your pest control business goals!