Many taxpayers often ask: “So how much can I deduct for meals?” If it were only that simple! Unfortunately only BUSINESS or JOB RELATED meals & entertainment can be tax deductible. The meal or entertainment expense must meet several criteria in order to be properly deducted on a tax return.
To be able to claim meal expenses, the reason for the meal must be for bona fide business purposes. One cannot simply go out to dinner with a friend and claim that as a deduction. If, however, they were trying to pursue a business deal with their friend, this COULD BE a deductible meal. There are three main guidelines to determining if the meal is qualified.
· 1) The meal was directly related to or associated with the active conduct of your trade or business.
· 2) The meal was not an extravagant meal (i.e. A six course lobster dinner with expensive champagne).
· 3) You or your employee must be present at the meal (you cannot just cover the bill).
In addition to meals, you can claim expenses incurred on entertaining your current or prospective clients. Some examples of qualified entertainment are at nightclubs, at social, athletic and sporting clubs, at sporting events, on yachts, or on hunting/fishing trips. Entertainment does not have to be strictly business related. If it were, then it might not be as enjoyable! The point of providing entertainment is to casually persuade a prospective client or to keep a current client happy. Membership fees to a country club or gym are not usually deductible.
MAKE SURE THAT YOU SAVE YOUR RECEIPTS from any expenses that you incurred on qualified business meals or entertainment. A receipt is needed to correctly determine how much was spent. You must also either document on the back of the receipt with whom you had the meal and what business matters were discussed or keep a journal or log with the same type of information. If, by chance, you were to be audited by the IRS, State and/or local taxing authority, you would probably have to show some type of written evidence that the meal or event took place and that it was in fact, business related.
In order to keep this blog accurate, we must also mention that most meal & entertainment expenses are only 50% tax deductible (ask Armel Tax or your tax advisor for more info).
So now that you know more about the meals & entertainment tax deduction, hopefully you will conduct more business meetings at restaurants, bars and clubs to help your local economy. If you do, please remember to save your receipts and make notes, so that you can bring them in when you are ready to file your taxes and possibly see part of that money come back in your tax refund!
Anil Melwani, CPA
646-699-4818, CPA@armelTax.com , www.armelTAX.com