I had an associate in town this weekend for an intense long working weekend. We worked a lot from the office, but did take a couple meals out. This is pretty common in working situations. As a small business owner you make take important customers out to a nice meal to show your appreciation, or you may take some employees out for a work anniversary celebration or other special event. One of my clients pays every time his vendors take him out to a meal. Whatever floats your boat. Obviously, you want to get the most bang for your buck, so you want to deduct whatever expense you can on your taxes, right? Right!
According to the IRS’s website (www.irs.gov) Publication 535, the meals “must be ordinary and necessary expenses incurred while carrying on your trade or business. Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business.” This is not necessarily hard. On your copy of the credit card receipt, note who you were with, and what you discussed or the purpose of the meal. Make sure you keep the receipt in case of audit, but….. that’s it! It’s pretty easy. If you want to get fancy, keep an envelope marked business meals, and shove all the receipts in there. You will be good to go with that.
Now, when it comes to your taxes, you are only generally going to be able to deduct 50% of the total. Taxes and tip are included in this amount, so make sure you fully fill out your copy of the credit card slip!
I do want to caution you to use some common sense with this though. IF you were to ever get audited you don’t want receipts for every meal of every day of the year in your file. That raises severe credibility flags. Depending on the nature of your job, even once a week may be suspicious. If you’re a traveling salesman, you will be able to get away with a lot more than I can. Also be honest! Don’t take your kids out for pizza at Chuck E Cheese and expect to write it off as a business expense since they helped you file some papers three years ago. That ain’t gonna fly.
Bottom line, make it legit, use common sense, and make notes, however brief, on your receipts so you can deduct your 50% come tax time.
Any questions, feel free to call or e-mail! I’m not a tax expert, but I can advise you where to look, send you references, and ESPECIALLY advise you how to record it in QuickBooks, which I didn’t even cover here, since it is pretty subjective.