01/14/2010
We all deduct meal expenses in our businesses and some of us get unreimbursed business expense deductions from our jobs. Do you know what is and isn’t actually deductible? Give yourself a quiz:
1. You, the business owner or local sales rep, make several service calls every day. You stop for lunch wherever and whenever it is convenient, spending most of your lunch hours behind the wheel. Your daily, on the road meals are:
a. Totally deductible IF you have all the receipts
b. 50% deductible IF you have all the receipts
c. Covered under a per diem deduction
d. Not deductible at all
2. You, the business owner or sales rep, carry a lunch into a client’s office for the staff in order to host a meeting to discuss your products/services with them. The carry in meal is:
a. Totally deductible IF you have all the receipts
b. 50% deductible IF you have all the receipts
c. Covered under a per diem deduction
d. Not deductible at all
3. You, the business owner or sales rep, drop off a box of doughnuts at a client’s office to promote goodwill. The doughnuts are:
a. Totally deductible IF you have all the receipts
b. 50% deductible IF you have all the receipts
c. Covered under a per diem deduction
d. Not deductible at all
4. You, the S corporation owner, travels to a meeting and you are gone one or more nights because of the distances involved. You eat all of your meals in restaurants. The meals are:
a. Totally deductible IF you have all the receipts
b. 50% deductible IF you have all the receipts
c. Covered under a per diem deduction
d. Not deductible at all
5. So what if you are a sole proprietor or a C corp owner and you travel to a meeting and are gone one or more nights. You eat all of your meals in restaurants. The meals are:
a. Totally deductible IF you have all the receipts
b. 50% deductible IF you have all the receipts
c. Covered under a per diem deduction
d. Not deductible at all
Here are the answers:
1. D – that is right, your daily meals are NOT deductible at all because like everyone else in America, you gotta eat. Meals are only deductible when you are NOT traveling IF you are feeding a client or an employee or someone else related to your business. The deduction is 50% — see the IRS’s logic? You gotta eat, so your 50% is not deductible, but your client’s 50% IS deductible. Keep receipts – credit card statements suffice as long as you keep records of who you fed and what the meeting pertained to.
2. A – this is a case of when a meal isn’t really a meal but a business expense that expedites training or sales. You are providing refreshments while requiring them to sit there. Can you do this with your own employees. Yes. Bring in pizza or Chinese to keep your employees at their tasks, and it is fully deductible. If you take them out to a restaurant, it is probably only 50% deductible.
3. A – once again, the doughnuts are not really a meal, but a marketing tool. Can you feed doughnuts deductibly to your employees everyday? For tax purposes, yes. For health purposes, think about a bowl full of fruit instead :). Also deductible.
4. B – the only time that your own meals by yourself are deductible is when they are related to overnight travel. S corp owners may NOT take a per diem deduction. And if you simply advance yourself a check to cover all the costs of your trip, you must turn in receipts to account for how you spent the advance. If the expenses were less than the advance, you must pay back the difference. If more, the company owes you an additional sum of money. If you do not account for your expenditures, the advance is considered to be taxable income to you OR a distribution.
5. B or C – this is a trick question. There had to be one. Sole proprietors and C corp shareholder-employees have a choice. You can take a 50% deduction on actual expense or 50% of the per diem allowance for the place(s) to which you traveled. The per diem could be $39 to $71 – you need to look up locations on the IRS tables. Go to www.irs.gov and do a search for Per Diem Rates – Meals. By the way, transportation workers get an 80% deduction.
And of course, nothing in the Tax Code is quite as straight forward as what is outlined above, so be sure to confer with your tax professional to determine deductibility of your meals.