Tax law is hardly clear and concise. We can read the law and often scratch our heads wondering "what in the world did that just say?". Today, I'm going to briefly explain what meal deductions are allowed at 100 percent of the deduction and what meal deductions are allowed at 50 percent deduction. Remember, in all cases it is best to consult your tax advisor to ensure that you are interpreting the tax code correctly.
Let's break it down into the two categories.
50% DEDUCTIBLE MEALS
Meal expenses for business meetings of employees, stockholders, agents, and directors. Office meetings and partner meetings fall into this category. If there is no business function to the meal, it is non-deductible for tax purposes. Also, the discussion must be before, during, or directly after the meal.
Generally, any meals during business travel. Be careful when substantiating the deduction and keep in mind that personal meal expenses are not deductible. The trip must be MOSTLY for business purposes. (Further discussion of this is beyond the scope of this post)
Meals at a convention, seminar, or any type of meeting even if the meal cost is not separately stated from the cost of the event. However, if t's not separately stated, it must be calculated by the taxpayer based on reasonableness or per diem rates for that location.
Meals with people related to the business such as clients, customers and vendors provided that it is for business purposes.
Meal expenses by an employee during a business trip and reimbursed to that employee are still only deductible at 50%, even if you reimburse the employee 100% for the cost of the meals. (Hint: take care to substantiate these expenses because during an audit, the IRS may rule the reimbursement as disguised wages. This topic is beyond the scope if this discussion.)
100% DEDUCTIBLE MEALS
Meal expenses for a company picnic or holiday party. (Don't confuse this with meals at a meeting, seminar, etc.)
Office Snacks - coffee, soft drinks, bottled water, donuts, and similar snacks or beverages provided to employees on the business premises. Often referred to as de minimis expenses.
Food made available to the public for free - usually as part of a promotional campaign.
Meals provided on the employer's premises to more than half of the employees for the convenience of the employer. Translation: if you are providing meals to your employees in order to keep them working late, working weekends, or being on call, it is for your convenience to have them at work and the meal is a means of enticement.
If the meal expense is included as taxable compensation to the employee and included on the W2, then the expense is fully deductible to the employer. Don't confuse this with the above reimbursement to the employee. Recorded as wage expense)
If a professional firm bills actual meal expenses separately when invoicing the client and is reimbursed by the client, the actual meal expenses for that engagement are fully deductible. However, if the meal expense is included in the invoice but is not separately stated at actual cost, then those meal expenses are only 50% deductible.
Meals and food as part of a charity sporting event are fully deductible. To qualify, a charity sporting event must be organized for the primary purpose of benefiting a 501(c)(3) organization, must contribute 100% of its net proceeds to the organization, and must use volunteers for substantially all the work performed in carrying out the event.
Taxes are complicated and are rarely black and white. The discussed information is only the tip of the iceberg and ties into many other aspects of the tax code. If you would like to know more about this topic please give us a call at 208-935-1040. We would be happy to assist you. Check back very couple of weeks for articles on new topics. Or better yet, subscribe to our blogs.