Well, things have changed in 2018 when it comes to meals and food expense. However, I realize many of you reading this article may be preparing your 2017 tax return (or an earlier year) and need to know what it was like in the wild wild west before 2018.
Now for all of you that want the new rules for dining in 2018, read this article here.
But back in pre-2018, if we were out on the town, talking business with clients, employees or partners over dinner, and followed proper documentation procedures, we could deduct up to 50% of the dining costs, and it just got better from there. Here is the rest of story in the good ole years and 5 strategies for writing-off meals and food you NEED to know…
1. Meals with clients, prospects, vendors and board members. This the classic deduction we have taken advantage of for years. If you are out talking business and ‘breaking bread’, you are allowed to deduct 50% of the food, tip and bar tab. Keep good records of these meetings and the receipt.
2. Meals while traveling. Another wonderful deduction is writing off meals while traveling outside of a normal commute from your place of doing business. This is still limited to 50%, but you can take the greater of the actual dining expense OR the per dim amount published annually at the GSA here.
3. Writing off food at events and presentations. Whenever you provide food or snacks at a workshop or presentation, the food is 100% deductible if it’s for the convenience of the attendees to keep them on the premises during the event, or if other options for reasonable dining are limited.
This can also include purchasing food for a presentation at your home and holding an event or presentation for your business. Keep in mind that this can’t be considered a company party or a reward or benefit to your employees or customers. Thus, make sure you keep good records as to who attended, the business purpose for the event and what the presentation consisted of.
4. Allowance for dinner expenses for employees when they’re working overtime. When your employees work overtime and you give the employee $30 for example for dinner, you get a 100% deduction and it’s tax-free to the employee.
To get the deduction you need to meet 4 criteria:
- You provide the benefit only occasionally (defined below).
- You pay no more than a reasonable (defined below) amount.
- The meal enables the employee to work overtime.
- It has to be discretionary and not tied to hours worked or a rate per hour.
Occasional, under IRS rules means “not routine and not regular”, and it can’t be a contractual right of the employee and entitled to it every time they work overtime.
The term reasonable, it relative and is based on the area of the city and where the workplace is located and what restaurants are available. You simply need to be able to justify that the money you provided to the employees is what they needed to get dinner without driving across town. Again, being an isolated and not a routine offer.
Keep in mind if you don’t meet the four tests above, then the entire deduction is disallowed and the money given to the employee must be included in their paycheck.
5. Lunch at the office with the employees. Interestingly enough, if you take your employees to a restaurant for a working lunch meeting, the employee meals become an entertainment expense, which means the deduction is subject to a 50 percent cut.
However, if you want a 100% deduction, you simply have to hold the lunch meeting on the business premises and for your convenience.
The term convenience can mean a variety of things, such as:
- The employees must be on the premises for important or emergency calls, and it’s reasonable to expect them to occur.
- Employees are restricted to a short meal period, and you cannot reasonably expect the employees to eat elsewhere during such a short period.
- Employees must be restricted to the premises because they could not otherwise secure proper meals within a reasonable meal period.
However, the convenience CANNOT mean:
- It was provided as a means of providing additional compensation to the employees.
- Meals are furnished to make employees available for emergency calls.
- Meals are furnished to promote the goodwill of employees or attract new employees.
Another interesting fact is that if the employer meets the “convenience of the employer” test for more than 50 percent of your employees, then meals furnished to all employees qualify as deductible for the employer. Essentially, you don’t have to provide lunch for all of the employees, but if you meet this 50% test, you can choose to feed them all if you want.
Bottom line, there are several types of food expenses that are 100% deductible and can add up to be significant tax savings on your books. Even the dining and meals limited to 50% are an excellent deduction and shouldn’t be overlooked. Keep good track of your food expenses and keep several categories in your QuickBooks, it’s not a big deal and it will give you an important opportunity for a discussion at tax-prep time.
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.