Ask The Expert: Meals & Entertainment and the IRS
Trey Bayne, CPA Partner In-Charge Tax Services
Most business owners are aware of the deduction limitations on meals and entertainment expenses yet we continue to see a number of companies that aren't quite getting it right.
Business expenses related to meals and entertainment are viewed by the IRS as:
- 0% deductible – club dues and membership fees, lavish and extravagant meals, amounts paid for event tickets in excess of face value
- 50% deductible – meals and entertainment that have a direct or associated business purpose
- 100% deductible – meals provided by the employer for the convenience of the employer on the business premises or meals that are of little value (de minimis)
- Salesperson takes a client out to lunch to talk about business – 50% deductible
- Owner buys lunch for her employees at the office so they can work through lunch – 100% deductible
- Salesperson takes a potential customer to a ball game to try to close a sale – face value of the game tickets are 50% deductible, remaining portion 0% deductible
- Owner takes employees out to lunch to brainstorm marketing ideas – 50% deductible
- Owner takes a customer out for an extravagant meal – portion that is not lavish or extravagant is 50% deductible, remaining portion 0% deductible
- Owner give a salesperson a standard meal allowance while traveling – 50% deductible
- Owner pays for a company dinner for employees and their guests – 100% deductible
- Salesperson is traveling and makes a quick stop for a fast food meal – 50% deductible
- Owner pays country club dues as venue for golf outings with clients – 0% deductible.
- Salesperson brings donuts in the morning for the office staff – 100% deductible
- Owner rents a yacht for entertaining a group of clients – 0% deductible
- Owner pays for the occasional dinner for an employee to work overtime – 100% deductible
While IRS scrutiny on meals and entertainment expenses has lessened a bit over the last few years, it is still very important that your business' accounting and tax policies closely follow the rules so that you aren't deducting too little or too much.
The MB Group, LLC is a certified public accounting firm providing a comprehensive range of professional and consulting services, including assurance, tax, compliance, accounting, business consulting and financial services.
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