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Education Past Articles Tax Deductions Meal Deductions 101
Education Past Articles Tax Deductions Meal Deductions 101
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I asked my CPA why are there two separate deductions for meals. - 50% Deductible or 100% Deductible. I thought all business meals were deductible! He explained to me that there are several specific rules to determine if a meal is a legitimate business expense or not. These rules are set to meet the business purpose requirement and the ordinary and necessary requirement of the business. Ordinary and necessary are some KEY words you will see we use in many of our articles and educational tools. The General Rule is: Meals are generally 50% deductible. This means when a business pays for a meal, only 50% of that amount is deducted on the tax return. It's extremely important to know the exceptions to this rule because some meals are 100% deductible! Meals that are 50% deductible include: - Meals with customers, prospects, clients and vendors. - Meals with employees, partners or directors - Meals during business travel - Meals while attending a class, convention, seminar, certification course or away from home over 50 miles What are the exceptions to the rules that make the meal 100% deductible according to my CPA? - Meals for the business party or other social event ((group meeting, holiday party, company picnic) - Meals provided on the employer's premises to more than half of the employees for the convenience of the employer. An example of this is when a business provides meals to employees in order to keep them working over time to keep the employees at the office. - Snacks provided to employees within the office. This includes coffee, water, soda, donuts, etc..snacks. - Meals where the business is reimbursed for the expense. An example, if a business takes a client to lunch and in turn bills the client for that lunch in a separate line item on the invoice, then the business can fully deduct that meal. Some professionals (accountants,CPA's and attorney's) invoice their customers for the meals as a separate line item. This makes the meal expense fully deductible to them and makes it 50% deductible to the client. If the meal expense is not specifically itemized on the invoice (include in their hourly or service fee), then the meal is only 50% deductible to the business and 100% deductible to the client. It's best to capture this information on the back of the receipt when you are at the restaurant making it easier to record when you get back to the office. Be sure you have set up two separate "buckets" or accounts to make the end of year reporting easier. You can do this by setting up two meal expense accounts in your accounting software or books - Meals - 50% deductible Meals - 100% deductible If you are using our tools we have already set up these accounts for you. If not, you can easily set them up in many accounting tools and then code the expense to the proper account when you enter it in your accounting program (We suggest Quicken). Then it's all makes the reporting at the end of the year a breeze for your tax preparer with no additional work! About The Author: Andrew Van Valer is a noted author, speaker, coach and CEO of Zyzyrgy.com and writes on a variety of subjects related to finance, debt reduction, personal franchises and home based businesses. |
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