The majority of the time meals and entertainment deduction are limited to 50% of the cost, but did you know that meals and entertainment can also be deducted at 100% of cost?
Like many IRS laws that have an exception to the exception and to the exception; Yes there are many exceptions, Uncle Sam has allowed us to keep some of our hard earned money. The answer to the question is; under the right circumstances, business meals and entertainment can be 100% deductible. Here is a list of situations in which meals and entertainment are 100% deductible:
Office parties: Meals provided solely for employees at office parties are 100% deductible. Anything from company picnics, banquets, holiday parties, or any other party for employees falls under this category. However, companies with no employees, like two-person partnerships or one who is self-employed do not fall under the 100% deductible category, and can only claim 50%.
Refreshments for the office: Any snacks or refreshments provided for the employees in a company office are 100% deductible.
Office lunches: If there is a valid business reason for providing lunch or meals at the office for the employees, it is 100% deductible. Valid reasons for providing meals include: increasing productivity, giving incentive for employees to work late, meals provided at work meetings, etc. These must include more than half the employees.
Charity sporting events: This is a very specific event in which meals are 100% deductible. Volunteers must put on the event, and the proceeds must go to a 501(c)3 charity. Any meals served at this type of event are 100% deductible.
Business event at home: If a business event is hosted at the employer’s home for employees or prospects, the meals served here are 100% deductible. It is important to document the reason for the event, and make a list of attendees.
Gifts: It is wiser to give entertainment such as tickets as gifts rather than deducting them as a 50% entertainment deduction. Entertainment gifts are 100% deductible with the limit of $25.
Public meals: meals or snacks provided to the general public are 100% deductible. An example would be open houses, or sponsoring a booth or table at a public place to promote the business.
Client Reimbursement: If you bill your client separately for meals and entertainment and receive reimbursement for the cost, then you can deduct 100% of the expenses. Your client is the one that is stuck with 50% deduction.
Of course, without a business purpose no meal can be deducted. A good rule of thumb to remember is to document every meal and entertainment purchase, as well as the reasons behind those purchases. It is also wise to keep the proof, such as receipts, of the meals and entertainment. Why get stuck with the 50% deductible when you can have the 100%?
Need assistance setting up quickbooks for deduction or have any other questions? Please contact us at firstname.lastname@example.org or call us at 713-451-9700.
Also read IRS Audit of Mileage Deduction