Are Your Meals 50% Deductible or 100% Deductible?

Are Your Meals 50% Deductible or 100% Deductible?
There are several specific rules to determine if a meal is
a legitimate business expense. These specific rules
include meeting the business purpose requirement and the
ordinary and necessary requirement. In this article, it's
assumed that the meal has met these requirements and is
indeed a business expense.

*General Rule

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 clients, customers and vendors.
- Meals with employees
- Meals with partners, shareholders and directors
- Meals during business travel
- Meals while attending a business seminar or convention

**Exception to the Rule (This is a great exception!)

Some meals are 100% deductible! These meals include:

- Meals for the business holiday party or other social
event (like the company picnic).

Office snacks provided to employees at the office. This may
include coffee, soda, water, candy, donuts, and similar
snacks.

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 weekends or working
later than usual. This is for the employer's convenience to
keep the employees at the office.

Meals for which the business is reimbursed for the expense.
For example, if a business takes a client to lunch and then
bills the client for that lunch in a separate line item on
the invoice, then the business can fully deduct that meal.

Ever wonder why some accountant or attorney invoices show
the meals expense as a separate line item? Because it
makes the meal expense fully deductible to them and makes
it 50% deductible to the client! Be careful if you are on
the receiving end of this invoice!

If the meal expense is not specifically itemized on the
invoice (and just lumped into the service fee), then the
meal is only 50% deductible to the business and 100%
deductible to the client.

*Important Tip: When it comes to preparing your tax
return, it's easy to forget which meals met the
requirements to be 100% deductible. And if your tax
preparer has never asked you this it most likely means all
of your meals are being subject to the 50% limitation !
It's best to capture this information when you actually
have the meal. You can do this by setting up two meal
expense accounts in your books:

Meals - 50% deductible
Meals - 100% deductible

Simply code it the proper account when you enter it in your
accounting program (such as QuickBooks). Then it's all
ready for your tax preparer with no additional work!

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Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on these strategies, Tom is an adjunct professor
in the Masters of Tax program at Arizona State University.
For more information please visit
http://www.provisionwealth.com