Entrepreneur Tax Tip II: Meals
Meals can be a complicated deduction so we’re going to provide you with 5 tips for doing it right from small business expert, Barbara Weltman (see full article here).
- Only 50 percent is deductible
“To be treated as a deductible cost at 50 percent, the meal must be directly related to the conduct of your business or the meal must directly precede or follow a substantial business discussion. For example, you’re trying to convince a prospect to do business with you in a meeting in your office. Following your presentation, you take the prospect to lunch. This would be a deductible business meal, subject to the 50 percent limit.”
- No deduction for your in-town lunch
“As long as you aren’t ‘away from home’ (in tax parlance this means out of town), your meal costs when eating alone are not deductible in any amount. If you are out of town, your meal costs — eating alone or with others on business — are subject to the percentage limitation discussed earlier.”
- Records are required
“The IRS looks closely at deductions for meal costs because of the potential for abuse and, if your return is questioned, will ask to see required records:
- “A record stating when, where, and why you had the meal. For example, the record could indicate that on November 25, 2013, you had lunch with Ms. Davis, a customer, and you discussed a new project that you’re working on for Ms. Davis.”
- “Receipts for expenses. Exception: You don’t have to retain receipts for a meal costing less than $75.”
- Standard meal allowance rates can ease record keeping
“If you have difficulty keeping records and receipts for meals when out of town on business, you can deduct a standard meal allowance. It may be less than your actual meal costs, but you won’t need receipts. If you have employees who travel on business, you may want to use the standard rate to reimburse them for their meal costs out of town.
“For 2013, the standard meal allowance usually is $46 per day within the continental U.S. It’s higher in New York City, San Francisco and other high-cost locations, including some resort areas. The U.S. General Services Administration publishes the daily standard rates by state. Independent truckers and others in the transportation industry have a special daily meal rate of $59 per day within the continental U.S.”
- Holiday parties are 100 percent deductible
“If you hold a party for your staff — in your facility or a restaurant — you can deduct all of the cost in this instance. As long as the party is for the benefit of employees and is not limited to the top brass, you can write off 100 percent of your costs.”
Hopefully these meal tips help! If you have questions, please, don’t hesitate to call. We look forward to hearing from you!
-Your tax experts at GQLaw