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2024 Deduction Update: Meals and Entertainment

Last updated 01/05/2024


Meals and entertainment are costs which change every year on how much you can deduct in your business. Sometimes it's 50%, sometimes it's 100%, and sometimes it's 0% So, you want to make sure you are keeping organized so your tax preparer knows how to handle certain costs and not lose out or overstate deductions.


MEALS AND ENTERTAINMENT DEDUCTIONS


100% deductible - you can deduct the full cost against your taxable income

  • Company parties - You can still have a good time with your team.

    • your full team doesn't need to attend, but everyone must have been invited to attend.

  • Meals provided to employees at work

    • for example if they were working late and your policy covers dinner

  • Food and drink given free to the public

    • For example, if you organized an event where the public attended and you provided food and drink i.e. not an event for clients or employees



50% deductible - you can only deduct half the cost against your taxable income

  • Business meals with clients or employees

  • Meals whilst traveling for business purposes

    • this is one that not a lot of people know!

  • Office snacks

    • this includes tea, coffee, donuts for your team.

    • this doesn't include bringing Starbucks to the office



0% Deductible - you can still charge to your business but you wouldn't be able to deduct any amount of these costs against your tax deductible.

  • Entertaining a client, even if it is for business purposes or business was discussed. Event such as concert tickets, golfing events etc.

  • Country club fees or dues

  • Meals or snacks for your own consumption i.e. groceries



MANAGING ON THE PROFIT & LOSS


As there are different expenses that have different deduction percentages, and clear and accurate records are going to be key!


It is recommended to create three separate meal sub-accounts;

  • Meals 0%

  • Meals 50%

  • Meals 100%


You tax preparer will be able to clearly use the balances accordingly to make ligher work for your taxes. Remember, the more complex or work your tax preparer has to do, the higher the fee is!


KEEPING RECORDS


The IRS requires to keep clear records when it comes to meal deduction. Well, all deductions for that matter!


So, keep the receipt which must show:

  • Total amount including tip and/or delivery fees

  • Place of meal

  • Purchase of meal

  • Who attended


Make sure you keep the itemized receipt and not just the credit card portion.


Good news is that you don't need to keep hard copies of receipts (no more need for the shoe box) and you can keep digital copies of your receipts.


However, getting into the habit of taking a picture or scanning those receipts is going to require discipline. It is advised to save all back up in a dedicated folder so you know where all back up is and it's organized.


 






DISCLAIMER

The Finance Agency are accounting professionals however, any information contained or given is for educational purposes only and does not a substitute for financial advice from a professional who is aware of the facts and circumstances of your situation.   Please consult with a CPA, tax preparer, or accountant that is working with your specific business situation and State regulations.



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