When looking for deductions to add to your taxes, don’t overlook your meal and entertainment expenses. These types of expenses must be “ordinary” and “necessary” to your business or trade and must be “directly related to” or “associated with” the active conduct of business.
In order for the IRS to allow these deductions, documentation is required and should include the following items:
- The amount
- Date, time and place
- Business purpose
- Names of guests and business relationship
In addition, the surroundings must be conducive for a business meeting, and any discussion before, during or after any meal should be business-related for it to be considered for a deduction. An intimate and quiet location would be appropriate for a business discussion. Refrain from going to places with loud and distracting events that can interfere with the main objective: to talk about business. And note that merely going out to lunch with a co-worker and discussing events at work won’t qualify.
A 50% deduction on entertainment expenses is allowed by the IRS if the purpose of the business is to conduct a specific business agenda. The 50% rule also covers the cost of meals during away-from-home business travel. In addition, deductions for expenses related to the meals (e.g., taxes, tips and cover charges) are also limited to 50% of cost; however, this is not true for costs of transportation to and from the meal or entertainment location.
If your employer would otherwise reimburse you for business meals but did not because it was felt that the expense was not warranted, or if you simply chose not to seek reimbursement, the expense is not deductible.
Meal and entertainment expenses are deducted directly on the business schedule of a self-employed individual, but for an employee they are a miscellaneous itemized deduction; the total of this deduction category is reduced by 2% or your adjusted gross income. So the benefit will be reduced or possibly eliminated by the 2% reduction. In addition, miscellaneous itemized deductions are not deductible at all to the extent a taxpayer is taxed by the alternative minimum tax.
Keep in mind, there are other important guidelines to consider. If you need assistance, contact the Business Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
