Meal and Entertainment Rules

Defined

You may deduct the cost of business related meals and entertainment.

Includes

This includes meals eaten when traveling out of town overnight on business. It includes bona fide business related entertainment. This essentially means you must be entertaining someone who is a customer, vendor, potential customer or vendor, or anyone who can legitimately help you in your business. It also allows for meals purchased for employees for the convenience of the employer.

Limit

Meal and Entertainment expenses are limited to 50%. The remaining 50% is nondeductible. Company picnics and occasional parties are not limited by the 50% rule and are 100% deductible.

Excludes

This excludes the lunch you eat by yourself while in town. You cannot deduct social/golf/health club etc. dues; but you can deduct the cost of taking a business associate to your club. There are a lot of exclusions and special rules relating to meal and entertainment deductions.

Tax Records

Keep cancelled checks, credit card receipts, invoices and Meal and Entertainment Records. Meal and Entertainment Records must include date, place, amount spent, names of people involved and business purpose. Use the enclosed forms to keep track of your expenses.

Tax Strategy

Whenever you can, mix business with pleasure.

Beware

Meals and entertainment expenses are often disallowed by the IRS and the courts because they are deemed not to be actual business expenses and or they are not properly documented.