Paying for meals for the purposes of discussion or entertainment is often a necessity for business owners. These frequent outings can become a very noticeable area of cost for small businesses. Here are some tips for making proper tax deductions on meals, and for keeping the overall costs to a minimum.
Note How Much You Can Deduct
Certain meals can be tax deducted if they meet a number of terms. Specifically, they must be for the purposes of discussing business. Whether it’s wooing a new client or starting a new deal with an existing client, the meal must have a definite business purpose. It’s important to note, however, that in the case of these business meals, only 50% of the cost can be deducted. There are cases where the IRS will deduct 100% of the meal cost. For example, if snacks like donuts or coffee are bought for the benefit of the employees in the office, then these costs can be fully deducted. Overall, knowing how much to deduct will help you make proper lunch deductions.
Lunch From Home Can’t Be Deducted
Although meals for the purpose of discussing business with clients and meals bought for employees go into the tax deductible category, office lunches brought from home, however, are not typically tax deductible. When your lunch is brought from home, they are considered to be a personal expense. The exception to this rule is if one travels away from their tax home on business; in this case, one can deduct 50% off their meal costs. Otherwise, skip making lunch at home if you want to deduct the expenses at the office.
Keep A Record Of All Deductions
Needless to say, the IRS is incredibly frugal when it comes to tax deductibles. When making a claim for a business-related meal, one must provide a complete record of the event in terms of cost, time and place. Keeping receipts of any and every business outing is prudent. It’s recommended that every business practice consistent record-keeping of all its events. Businesses should also keep their expenses to decent levels of necessity. As expected, extravagant spending will likely increase the chances of being audited. In case you are audited, then you will have the proper documentation to show your expenses are legitimate.
Dealing with taxes and the IRS can be a back-breaking exercise for many small businesses. Something as simple as taking a client out for lunch should not have to be a roadblock for business owners. If you deduct office lunches properly, this tradition is still an effective way to build rapport with clients and employees while being tax savvy. Following theses simple tips outlined in this post should help to remove any headaches involved with office lunch tax deduction.
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