Meals are one of my favorite types of deductions because they can eliminate tax. If you are able to turn your current non-deductible meals into legitimate deductions, then your tax is permanently reduced.
In the U.S. tax law, there is usually a general rule for a particular deduction and then an exception to the general rule. This is the case with meals.
Understanding the general rule and the exception can help maximize your tax savings. While this specific example is from a U.S. tax standpoint, the concept holds true in most developed countries.
General Rule
Meals are generally 50% deductible.
This means when you pay for a deductible meal, only 50% of that amount is deducted on the tax return.
Meals that are 50% deductible include:
– Meals with clients, customers and vendors.
– Meals with employees
– Meals with partners, shareholders and directors
– Meals during business travel
– Meals while attending a business seminar or convention
Exception to the Rule
This is a great exception to know because some meals are 100% deductible.
These meals include:
– Meals for the business holiday party or other social events (like the company picnic).
– Office snacks provided to employees at the office. This may include coffee, soda, water, candy, donuts, and similar snacks.
– Meals provided on the employer's premises to more than half of the employees for the convenience of the employer. An example of this is when a business provides meals to employees in order to keep them working weekends or working later than usual. This is for the employer's convenience to keep the employees at the office.
Tips for Recording Your Meals in Your Accounting Program
When it comes to preparing your tax return, it's easy to forget which meals met the exception to be 100% deductible.
If your tax preparer has never asked you about the 100% meal deduction exception, then it most likely means all of your meals are being subject to the 50% limitation.
It's best to capture this information when you actually have the meal. You can do this by setting up two meal expense accounts on your books.
For example:
Expense Account #1: Meals – 50% deductible
Expense Account #2: Meals – 100% deductible
Simply code the meal to the proper account when you enter it in your accounting program (such as QuickBooks). Then it's all ready for your tax preparer with no additional work.
Remember: Whether the meal is 50% deductible or 100% deductible, 100% of the expense is recorded in your accounting. The 50% non-deductible portion is accounted for as part of the tax return preparation.
[hr]Additional Resources on this topic
Online Courses:
The information provided here are general guidelines. You can find more detailed information in the courses listed below.
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- How to Increase Deductions of Travel, Meals & Entertainment (STS 04)
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Click here to learn more about online courses.
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