Deducting the cost of meals at restaurants is one of the more delicious parts of running a business. But as a bookkeeping services provider for many small businesses, I get a lot of questions about how to go about deducting these expenses in the proper way.
Generally speaking, you can deduct 50% of the cost of a meal or entertainment which is directly related to, or associated with business operations. But to truly enjoy that deductible meal, and make sure you’re doing things above the table, here are some guidelines from Norwood, MA-based QRGA, LLP about when and how to deduct business expenses pertaining to meals or entertainment. Make sure to coordinate the proper tracking and support of these expenses with your bookkeeping services provider.
1. Don’t Show Me The Money
Whether or not a business transaction actually occurs as a result of the meal or entertainment is not, as many think, the deciding factor of tax deductibility. If you take a client or a potential client out to dinner to discuss business, or directly before or after doing so, the meal qualifies as deductible (again, generally speaking 50% of the cost). So even if that potential client ends up not signing, you can still write off half of that lobster he ordered.
2. Plus One is Still Minus 50%
If you’re entertaining business guests and you invite their spouses along (and if your own spouse is present as well) the entire group will be part of this tax deductible expense. On the other hand, if you’re entertaining a group of three business associates or clients as part of your business operations, and a group of seven close friends (unconnected to the business) are also in attendance, you may not deduct expenses pertaining to those seven.
3. The Host with the Most (Deductions)
You can also deduct the cost of hosting clients and business associates in your own home. Like at the restaurant, if you have non-business related friends in attendance, you must discount the cost of hosting them from the deductible amount.
4. Keep Track and Keep Records
Make sure you keep accurate reports of the cost, purpose and nature of the business relationships pertaining to these entertainment and dining costs. Swift Business Books can ensure that these records are maintained properly to substantiate these deductions. Also, make notes of the best restaurants and your favorite things to order. A good restaurant choice might be the difference between landing that new client or not and if your business is booming, you might just become a regular.