When preparing our income taxes, we all look for every deduction we can find, especially individuals that are self employed. Self Employed individuals or those that travel a lot for employment often discover there are more things they can deduct than they realized. Meals are one item that is often a "touchy" subject as tax payers are uncertain as to what they can deduct and what they can't. Although meals are considered a legitimate business expense, there are requirements that must be met because while they are a business requirement, they are also an ordinary requirement.
In order for meals to be deductible they must meet both of these requirements. Generally, meals are 50% deductible on your income tax form. What this means in terms of your taxes is that if you or your business pay for a meal, 50% of the price can be deducted on your income taxes. There are, however, exceptions to the 50% rule and it's important to understand the exceptions because some of your meals may be 100% deductible.
Some of the guidelines for meals that are 50% deductible are as follows:
- Meals eaten with your customers, clients and vendors
- Meals with your partners, directors, shareholder and employees
- Meals during the course of your travel
- Meals eaten while you're at a convention or seminar for business
As stated up above, even though most of the meals are 50% deductible for your business, some can be 100% deductible. Make sure you know the difference as it can make a huge difference in your tax deductions.
It probably seemed above that all your meals are only 50% deductible but that's not always the case. When you host that holiday office party or company picnic, you can deduct 100% of that meal. The wonderful coffee, donuts and snacks you provide to your employees are also 100% deductible. Even those little dishes of candy you see on office desks are 100% deductible for that business.
Occasionally an employer will have a heavy workload that requires some of the employees to stay late or work on the weekends when they're not normally scheduled to work. Because it's the employer that needs the workers there, the meals they provide to the employees are 100% deductible. There are some stipulations to this rule, however. The meals must be served on the employer's premises and more than half the employees must be working for the employer.
If you are paying for a meal that you will be reimbursed for by the client you can deduct the price of the meal 100%. This is a situation where you may pay for the meal while you're eating and then later put the price on a separate invoice line with his ordinary bill. You often see these types of bills between an attorney and his client. The price of the meal will be on a separate line on the invoice, which means the attorney can deduct it 100% but the client can only deduct it 50%. So, keep in mind, if you want to deduct a meal such as this, you cannot add it into the entire price of a bill. It needs to be itemized on a separate line. If it is lumped together with a service fee or similar fee, the percent flip flops. In other words, the client can deduct it 100% while the business only gets a 50% deduction. As you can see, it's very easy to covert a 50% deductible meal to a 100% deductible meal legally and save some tax dollars.
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