By Ben Kinsey, CPA
|Image courtesy of flickr|
One of the perks of being a business owner is being able to write off meals when you travel for business or take a client out for lunch. That’s the good news. The bad news is that the IRS rules for deducting meals are complicated. Get them right and you can enjoy that free lunch you’ve always heard about. Get it wrong and you can wind up running afoul of those same regulations, which could cost you deductions or even give the IRS cause to begin an audit that could well eat your lunch. Below is some food for thought regarding meals.
First Course: Travel Meals
When you travel for business purposes, the expenses incurred are indeed deductible. The cost associated with lodging for business trips is 100% deductible, as are the miles driven to reach your destination. Meals, on the other hand, are only 50% deductible when you travel for business. This deduction does however include the cost of the meal, tax and tip. The caveat for leveraging this deduction requires you to be far enough out of town to require lodging. So, day trips from Jacksonville to Orlando do not apply. You also need to be able to prove to Uncle Sam that there was a legitimate business reason for the trip. This means the reason for going needs to have been to attend a trade-show, training session or business conference, or to visit a client or prospect.
Second Course: Entertaining Clients
When it comes to wining and dining clients, I have good news and I have bad news. The good news is the IRS allows you to take clients and prospects out to eat, as long as there’s a legitimate business connection. What I mean by that is as long as the person being wined and dined is a current client, a prospect or current employee, you may claim a deduction provided you talk business before, during or after the meal. The rules also stipulate that the reason for your largess has to be related to the expectation of a substantial business benefit being generated as a result of the meal. The bad news is that like travel-related meals, you are only permitted to deduct 50% of the meal for tax purposes.
Third Course: Feeding Your Employees
|Image courtesy flickr|
Here’s a meal deduction every business owner will appreciate. That’s because it entails a 100% write-off. I’m talking about feeding your employees onsite. By onsite, I mean any time you spring for lunch that is brought to your office for your employees, it’s 100% deductible. So too are snacks, donuts and coffee purchased for your employees. The only caveat is that the food has to be consumed by your staff, not just by yourself. So, get the thought out of your head that you can write off your own in-office lunches, unless you invite your employees to join you. That doesn’t mean if you and your staff are working late to meet a deadline that you can’t spring for pizza. That would be 100% deductible.
Fourth Course: Feeding the Masses
As part and parcel of doing business, sometimes you will want to throw a party, or invite clients, prospects, employees and their families to an event. Whether we’re talking an annual Christmas party, or an open house designed to improve camaraderie as well as showing appreciation to your clients and staff, the IRS allows you to write off 100% of the food and beverages.
Just Desserts: The Job isn’t Done Until the Paperwork is Complete
|Image courtesy flickr|
Here’s where some business owners run afoul of the IRS. If you want to claim a deduction, you have to document the transaction. Sounds simple enough, doesn’t it? The problem is, if you think the IRS is going to accept your credit card statement as proof, you’re dead wrong. That means anytime you take a client, prospect or employee out for lunch or dinner, you need to keep a copy of the bill of sale you receive at the restaurant. If you cater lunch in for your employees, you’d better be able to provide a printed receipt. Last but not least, if you intend to throw a party or event, for goodness sake, request and file an invoice with the caterer of your choice.
As they say, “There’s no such thing as a free lunch.” Even if you follow all the rules as to where and when you are allowed to write off business-related meals, you had better be able to back it up with the proper documentation. Fortunately, there’s a simple way for you to do that. Before you wind up getting caught in the wringer by Uncle Sam, you owe it to yourself to bone up on the current rules and regulations that permit businesses to write off travel, entertainment, gift and auto expenses. In fact, there’s an IRS publication that is designed to do just that: IRS Pub 463. In it you will find everything you need to satisfy the IRS rules and regulations. Who knows, you may even find a few deductions you had previously missed, such as how to write off a round of golf.
Ben Kinsey, CPA of Small Business Group works with owners of closely held corporations in the Northeast Florida region. If you work in the North Florida area we offer a FREE initial Consultation at our office, please contact Small Business Group if you would like to know more about strategies for your business.