Three types of meals and entertainment and how to deduct some of them at 100%
Interesting quick tips on travel and entertainment meals. Watch the Video!
- You must have records to prove the business purpose, the amount of each expense, the date and place of the entertainment, and the business relationship of the parties entertained
- Only 50% is deductible
- I would highly recommend that details are written on the back of the receipt. Make sure that you or your bookkeeper specify what type of meal applies when completing the books.
Hello, everyone. It’s Shauna, the Tax Goddess. We are going to be talking about three types of meals and entertainment. Did you know that there were three?
The first one I tend to call schmoozing meals. Note that if this is truly with a client, on your tax return, you will be deducting the meal at 50%. Schmoozing meals could be while you are trying to obtain a new client or you are working with a current client and trying to retain the business. These meals may include dinners, lunches, coffees, etc. Whatever it is, any type of meal or entertainment with a client is typically only deductible at 50%.
Type number two is travel meals and entertainment. The eligibility criterion for this type is travel outside of 50 miles from your tax home. For example, if your tax home is here in lovely, shiny, and happy Arizona and you are travelling to Las Vegas for a conference, this would be considered a travel meals and entertainment. In this case, you have one of the two choices. Depending on the city and state that you are travelling to, you can either put those meals and entertainment under the 50% meals and entertainment category or you can use what’s called the per diem. You may be travelling to a place such as New York City where the per diems are very high. You may have salespeople who travel extensively or you, being the head of the company, may be constantly flying around trying to obtain clients all over the country. In this case, the per diem is going to give you a much better deduction.
The third one and my favorite one is what I call employee meals. These are the meals where you are paying for meals and/or entertainment —more often meals— to keep your employees working and at their desk so that you get the best work product and the most efficient use of time. Often, the owner of an office brings in dinner for his or her staff, so that the staff stays late. This applies on partners as well. If you’re in a business where you have a partner and you two go out for lunch to discuss a specific operational or business topic, it can also go into this 100% entertainment category.
Make sure that you or your bookkeeper specify what type of meal applies when completing the books. I would highly recommend it be written on the back of the receipt. If you have any questions or need help with your bookkeeping, reach out to our team. We’d be absolutely happy to help provide services for you in any way that we can. I hope you guys are having a wonderful start to your new year.