Meals and Entertainment Expenses: Are You Getting Your Full Share of Tax Deductions?
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.