Taking a prospect to lunch is one of the most common business-development activities. Another regular business practice is to provide lunches for employees during meetings, training sessions and social gatherings.

One of these activities is 100% deductible on your tax return. The other situation is only 50% deductible. Do you know which is which?

The IRS certainly knows. And IRS rules can be tricky to navigate if you are not familiar with them. So here’s a quick reference for some common meals and entertainment (M&E) scenarios:

Participants	Purpose	Deductible
prospective employee or prospective client	business meeting	50%
anyone who attends	promotional event	100%
executives	business meetings	100%
employees	business meetings	100%
any employees/clients	break room snacks/drinks	100%
any employees/clients	holiday/anniversary party	100%
any participants	non-business related	not deductible
2 out of 10 executives	business lunch	50%
mentor and mentee	mentoring meeting	100%
employees	out-of-town meals	50%

Most businesses have only one expense account for meals and entertainment expenditures, and often everything is safely treated as only 50% deductible.

This is easily fixed.

To ensure that you are getting your full tax deduction, you should operate with two meals and entertainment expense accounts: label the first account “100% deductible M&E,” and label the second account “50% deductible M&E.” Then, using the table above as a handy guide, categorize the expenses accordingly.

Also remember to keep appropriate documentation (such as a receipt) of all your expenses.

By properly recording your 100% deductible meals and entertainment expenses, you can increase your deductions and, more importantly, lower your tax bill!

If you have any questions about deducting your meals & entertainment expenses, please feel free to contact us. We can help you determine the appropriate way to record your expenses.