Discussion:Meals-deductable?

Thanks, Lala

Secondly, the 50% limitation will apply to a meeting with an employee. The exemption from the 50% rule applies to meals and entertainment described in paragraphs 2,3,4,7,8, and 9 of Sec. 274(e). The exemption from the 50% rule does not apply to M&E described in paragraph (5) of Sec. 274(e) [employee and shareholder meetings].

Meals can only be deducted as a business expense if they are directly related or associated with the active conduct of a trade or business. There must be valid business purpose to the meal for it to be a deductible expense. Once this test is established, the expense falls into two categories: 50% deductible or 100% deductible. There is an additional caveat that if a meal is considered “lavish and extravagant” under the circumstances, the extra portion attributable to extravagance is not deductible at all. Meals with employees or business partners are only deductible if there is a direct or indirect business purpose.

50% DEDUCTIBLE

Meal expenses for business meetings of employees, stockholders, agents, and directors. Office meetings and partner meetings fall into this category. If there is no business function to the meal, it is completely non-deductible for tax purposes. Generally, any meals during business travel. Meals at a convention, seminar, or any type of meeting even if the meals cost is not separately stated from the cost of the event. Meals with people related to the business such as clients, customers and vendors provided that there is a business purpose or some benefit to the business will result. Meal expenses by an employee during a business trip and reimbursed to that employee are still only deductible at 50%, even though the employee was reimbursed 100% for the cost of the meals.

100% DEDUCTIBLE

Meal expenses for a company picnic or holiday party. Office Snacks – coffee, soft drinks, bottled water, donuts, and similar snacks or beverages provided to employees on the business premises. Food made available to the public for free – usually as part of a promotional campaign. Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer. Translation: if you are providing meals to the employees in order to keep them working late, working weekends, or being on call, it is for your convenience to have them at work and the meal is a means of enticement. If the meals expense is included as taxable compensation to the employee and included on the W2, then the expense is fully deductible to the employer.

Remember, you must have appropriate documentation (such as a receipt) to substantiate these expenses. The IRS will disallow expenses that do not have appropriate backup documentation.

I did it in my store front tax business. Warm dozen of Krispy Kremes and 25 coupons. Cost about $3. I use to spend about $1000 per year on doughnuts. Definitely not meals expense.

For the codeheads... a question I have always wanted to ask...and I apologize that is something I have never pursued the research of...it speaks to the anal nature of accountants versus actual rules...

if I have a legitimate business expense...say, marketing and I deduct it on my return as Office Expense, is there any provision in the rules that would give the service grounds for disallowing the deduction?

That is the basis I have always used on the hair-splitting discussions of whether this it's marketing or office expense, it's still deductible and who really cares which line it goes on.

Now obviously, if you are tracking a particular expense, you want to provide detailed accounting....just thinking prior to getting slammed with work.

I've heard that the IRS builds an industry average profile of expenses using the PAB codes, and compares your expenses etc. to the industry average. Presumably any outliers would have an increased chance of an audit.

I don't think per diem would ever (be careful when you use ever and never) be 100% deductible unless there is some provision for over the road truckers or something.

No 50% deductable limit, but subject to a $25 per person limit. Since the gift is packaged food that the customer can use at a later date, it can be treated as a gift, not an entertainment expense. Sec. 274(b)(1)

Went with client to a "large" bank in the city. At the close of the meeting, the banker ask if we would like to have lunch. It our area, lunch is going next door to the subway for a quick sandwich. The bank had their own dining room, complete with a cook and two servers. The dinning room would probably seat 25 to 30, and by the appearance of the staff, it appeared to be used daily.

I have alway guessed that this was for the convience of the employer.