|
|
 |
December 2008 Maximizing Your Meals and Entertainment Deduction The Tax Code allows some useful exemptions to the 50% disallowance rule Most business owners are aware of the tax rule that disallows 50% of their otherwise allowable deductions for business meals. This provision normally applies regardless of the reason for the meal – from taking clients out to dinner to paying for your meals while traveling away from home. What is not as widely known is that there are some exceptions to the 50% disallowance rule. When one of the exceptions applies, you generally get a 100% deduction for the business meal expenses. The office kitchen. Employers can deduct 100% of the cost of providing employees with free coffee, soft drinks, donuts or similar snacks or beverages to be consumed on the business premises. Employee parties. Employers can deduct the full cost of providing food and beverages at recreational, social or entertainment gatherings primarily for the benefit of rank-and-file employees (as opposed to just highly compensated employees). Examples include company outings, banquets or other gatherings (such as an annual holiday party) for employees and their guests. Meals served on the employer’s premises. An employer may provide employees with meals at work and claim a full deduction (without the employees having to report the value of the meals in their income). To qualify, the meals must be provided:
Items available to the public. Expenses incurred for meals available to the general public (e.g., free hot dogs at a car dealership promotion) are 100% deductible. Charity sporting event. The allowable deduction for the cost of a ticket to a qualifying charity sporting event isn’t reduced by the 50% meal disallowance rule, even when meals are included. The ticket package must include admission to the event, but it can also include meals and refreshments. To qualify, the charitable event must give 100% of its net proceeds to a charity and use volunteers to do almost all the work. A common example is a charity golf tournament for which the green fee includes a meal. Keep good records. As you can see, there are enough exceptions to the 50% disallowance rule that most businesses can meet at least one, if not more. To the extent your business qualifies, it’s important that the qualifying expenses be tracked separately (typically by charging them to a separate account in your accounting records) so that a full deduction can be claimed. If you have any questions regarding the types of business meal expenses that may qualify for a full deduction or how to properly isolate and account for them in your records, please contact your Schmidt Westergard & Company tax professional. Based in Mesa, Arizona, and serving closely held businesses in the East Valley, the Phoenix area and throughout Arizona, Schmidt Westergard & Company, PLLC, is an independent full-service tax, audit, accounting and business advisory firm focusing on the middle market. |
