Meal Expenses for your business

Meals are such a common expense for business owners anymore.

Networking meetings, coffee meetings with clients, referral partners, prospects, business dinners, traveling meals.

It is an inevitable part of running a business.

The nice part of all these meals and coffees, is that they can qualify as a business expense for you which allow you to reduce your tax liability.

However, writing off meal expenses can be complicated as they are not all created equal. Knowing what you can and can't write-off and what you need to write it off can help small business owners avoid issues with the IRS or state tax departments.

Meals vs. Entertainment?

Many bookkeepers and business owners lump meals and entertainment into the same category and this is no longer the right way to do this.

A few years ago the tax law changed and entertainment expenses are no longer deductible to reduce your tax liability.

Entertainment is things like golf outings, sports events, concerts, etc.

You can still pay for these from your business for legitimate business events, but they are a non-deductible expense for tax purposes.

The IRS provides updated guidance on meal expenses every year that you can find here.

What is a meal expense in your business?

Meals that qualify as a business expense is not simply swiping your card for the meals you eat each day while you are working or traveling to a job or client location. The tax code has some strict rules and requirements for what qualifies when claiming a meal expense for your business.

For a meal to be a business expense, it must:

• Serve a business purpose

• Must not be lavish or extravagant (it must be reasonable based on facts and circumstances- i.e. if you are meeting a client for dinner and you offer insurance services, taking them to a $200 plate dinner is not considered reasonable, but if your client is Taylor Swift, you are not going to take her to dinner at Applebee's)

• Business owner or an employee must be present at the meal (you cannot send a client a meal to their office and claim it as a meal expense)

• Travel meals - these only apply if you travel far enough away from home that you are required to stop and rest or sleep as part of the trip.
  

But you don't get to deduct the FULL Amount....

You may already know that meal expenses are typically only deductible at 50% of the cost.

This only matters when your taxes are getting prepared, and your tax accountant will know this and apply the limitation.

For tracking purposes, you will still track the full amount in your accounting software. You will want to ensure the expense is paid through your business account to be eligible.

Tracking expenses for meals

As with any expense, you want to keep track of receipts for your expenses, and meals are no exception. In fact, they are the receipts you need to take an extra step with to ensure you are audit proofing your business.

To track these expenses and have proper records, you will want to have a copy of the receipt. Many accounting software's have a receipt tool to take pictures and attach it to the expense so you have it if it is ever needed.

But before taking that picture, you will want to make sure to note on the receipt who you met with and what the purpose of the meeting was.

Common mistakes...

The biggest mistake is not keeping adequate records. Many business owners don't save their receipts, thinking their bank or credit card statement is enough. IT IS NOT!

Writing off meals that don't qualify is another common mistake. If you are driving to see a client and need to grab lunch on your way, that is not a business expense, even though you were working during the time. The meal itself must serve a business purpose (gaining a new client, creating or nurturing a referral relationship, networking, etc.)

The important part...

Meal expenses can save you money on taxes when done right.

However, this does not mean you want to spend money on meals just to have a write-off.

Meals expenses are a highly audited category, and when you don't track what you need to, save receipts and claim it properly, you could find yourself in an expensive mistake.

If you have questions about how to write-off meal expenses on your taxes, talk with your CPA or tax accountant. If you are looking for someone to help you track and record these items, Elevating Profits can help ensure you are capturing what you need to and that your deductions are in line with IRS guidelines.