Here are some basic rules you need to know to ensure that all your meal and entertainment expenses are deductible:
- Do you have an ordinary and necessary business reason for the meal?
- If the meal is for you, were you out of town for business overnight?
- Did you have a quiet business discussion before, during or after the meal? No discussion, no deduction! You’ll need to explain why the meal would benefit your business.
- The discussion must be conducted in a business setting that allows an active business discussion. This could be a restaurant, for example. If the main entertainment is done in a non-business setting such as a bar with loud music or a cocktail party, you must speak about business before or after the event in a business setting.
- Do you have proof? Keep documentation of who, what, where, why and how much. This documentation must be written, near the time of the meeting.
Almost all meals are deductible at 50 percent, meaning that if you spend $500, you receive only a $250 deduction.
Fully deductible meal expenses included employee holiday parties, annual picnics or summer outings. Don’t want your employees to leave for meals? Meals provided to employees at your place of business are deductible at 100% if they are for the convenience of the employer.
*Note: Create two accounts in your accounting system – one for 50 percent and the other for 100 percent deductible entertainment.