When is a meal expense a deduction for your business? Oh, let me count the ways…
First, let’s look at what doesn’t work.
A few years ago, we lost the ability to take a business deduction for entertainment. We also lost the ability to take a 100% deduction for meals that were at your place of employment “for the benefit of the employer.” That means that the meal at your computer or the catered working lunch was no longer 100% deductible.
There was some initial confusion about whether meals were entertainment and so the ban on entertainment deductions meant that you couldn’t deduct meals either. The IRS has released proposed Treasury Regulations that clearly state you CAN take a meals deduction, but you have to follow the new rules.
Both client and employee business meals are 50% deductible, but the expense must be ordinary and necessary for the production of income and incurred in the taxpayer’s trade or business. The meal can’t be lavish or extravagant. The taxpayer and/or employee must be present and the meals must be furnished to current or potential customers, employees, clients, agents or professional advisors.
You can also get a 50% deduction if you have a meal at an entertainment venue. The entertainment may not be deductible, but that doesn’t mean you can’t get a deduction for the meals. But there are rules you must follow.
The cost of food and beverages has to be purchased separately from the cost of the entertainment. If you go to a baseball game, for example, the cost of the hot dogs and beer is deductible (50%) if it otherwise meets the requirements for a business meal. But the game tickets and the cost of going to the game are not deductible.
Now, let’s say you have rented a private suite at a game or concert. Food and beverages are included as part of the rental and you’ve invited clients, employees, and prospects. Is this deductible?
If it’s all billed together, nothing is deductible. Ask the provider to break out the food and beverages in a separate invoice. You’ll be able to take a 50% deduction if you do that and meet the other meal deduction requirements.
If your employees travel for business, the meals they eat while traveling are 50% deductible.
Snacks or meals that are provided for employees in a break room are 50% deductible.
If you’re keeping track, that’s 5 different ways your business can take a 50% deduction for meals associated with your business and otherwise meeting the record keeping requirements.
Now, let’s look at how you can take a 100% deduction. That’s right! ALL of the expense in deductible.
If you have a holiday party for you employees and/or customers, it’s 100% deductible. The same is true if you have a summer picnic or other type of outing for your employees and/or customers, clients or prospects. The same is true if you provide food for customers or prospects and your employees indulge. That means thecost of snacks you leave in the waiting room would be 100% deductible, but if you put them back in the employee break room, they’re only 50% deductible.
You may have asked “What’s deductible?” when it comes to your business expenses. If you ask me, I’m going to ask you a question first.
“Where does your money go?”
I don’t believe in buying something you don’t really want or need just to get the tax deduction. Think about it. Let’s say you’re at a blended 30% tax bracket (federal and state). You spend $1,000 for something you don’t really need or want and you save $300 in taxes.
Is that a good deal? Spend $1,000 and get $300 back? Nope, that’s not a good path to wealth.
Instead, look at where you’re spending money already. Determining which of these personal expenses could actually be tax deductions? That’s where I like to start.
That’s why I ask about your expenses in the questionnaire we send you prior to your consultation with me. If you don’t want to save money in this way, no problem. Just skip that section. But for those who do, we usually can save you $1,000 – $2,000, year after year. Sure, not a lot, but that saved money goes directly in your pocket.
That’s just one of the things we can talk about during your personal consultation with me. It’s more than just you asking some questions, but of course, we cover those as well.
At the end of the consultation, we figure out the next steps. Lately, I’ve been asked about bunding together some sequential consultations. There are still a few packages available of those at a discounted price. Give Richard a call at 888-592-4769 if you’re interested.
The ongoing consultation bundle is right for someone who is focused on achieving specific goals and realizes the value of having a coach and advisor who has experience success in business and investments. The benefit of the bundle is that because you make a commitment, I will too. You’re guaranteed an ongoing spot at a deeply discountedprice.
Got a question about the best way for us to work together? Drop Richard an email at Richard@USTaxAid.com or call him at 888-592-4769.