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Maximizing Business Meals Deduction
Most business owners are aware of the tax rule that disallows 50% of their
otherwise allowable deductions for business meals. This provision normally
applies regardless of the reason for the meal-from taking clients out to dinner
to paying for your meals while traveling away from home. There are several
exceptions to this onerous 50% disallowance rule. When one of these exceptions
applies, you generally get a 100% deduction for the business meal expenses-which
might just make even a good meal taste that much better.
Here's a quick run down of the major exceptions to the disallowance rule:
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The Office Coffee Bar |
Employers
who provide their employees with free
coffee, soft drinks, bottled water, juices, donuts, or similar items
to be consumed on the business premises
can claim 100% of the expense
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Employee Parties |
The 50%
disallowance rule doesn't apply to the costs of providing food and
beverages at recreational, social, or entertainment gatherings primarily
for the benefit of rank and file employees (as opposed to highly
compensated employees). Examples include company picnics, banquets or
parties for employees and their guests.
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Meals Served on the Employer's Premises |
In the
right circumstances (which can be fairly difficult to meet), an employer
may provide employees with meals at work and claim a full deduction for
the costs (without the employees having to report the value of the meals
in their income). The key is the meals have to be provided (a)
for a valid business reason, (b)
on or near your businesses premises,
and (c) primarily for the convenience of the
employer (rather than merely as an added fringe benefit for
employees)
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Items Available to the Public |
Expenses
incurred for meals made available to the general public are 100%
deductible. Examples include free food and beverages at concerts hosted
by a shopping mall, free dinners for potential restaurant customers,
free hot dogs at a retail store promotion, a free wine and food tasting
exhibition sponsored by a liquor dealer, and free hors d'oeuvres
furnished by a realtor for a client's open house
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Amounts Billed to Clients |
When
services are provided as an independent contractor, the service provider
can deduct 100% of job-related meal expenses by
billing the client separately for these costs. (Obviously
this isn't always practical.) The client is then stuck with the 50%
disallowance rule. If separate billing doesn't occur, the 50%
disallowance rule applies to the service provider
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Charity Sporting Event |
The
allowable deduction for the cost of a ticket to a qualifying charity
sporting event isn't reduced by the 50% meal disallowance rule even when
meals are included. The ticket package must include admission to the
event, but it can also include meals and refreshments. To qualify for
this exception, the charitable event must give 100% of its net proceeds
to a charity and use volunteers to do almost all the work in the event
itself. The classic example is a charity golf tournament with a meal
included in the deal
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To the extent your business qualifies for any of them, it's important that the
qualifying expenses be tracked separately (typically by charging them to a
separate account in your accounting records) so that a full deduction can be
claimed.
If
you have any questions regarding the types of business meal expenses that may
qualify for a full deduction or how to properly isolate and account for them in
your records, please call us so we can help you get to the right answers.
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