As bookkeepers, we are responsible to assure that our client's expenses are correctly recorded in preparation for their tax preparer. One huge area of confusion (and complication) is food, meals, entertainment and travel. Here I will try to explain three distinctly different ways that meals are recorded.
We buy food for different purposes at different times. The tax law treats those purchases in different ways depending on the facts and circumstances. The three classifications you need to understand are:
- Travel Meals — these are expenses for food
while in "travel status" . Travel status is specifically defined and generally means being away from your "tax home" for more than a work day. All meals you consume are 50% deductible up to the per diem limit. (Note: as an alternative, you could pay yourself the per diem and dispense with tracking your actual food expenses.) - 100% Deductible Meals — expenses incured feeding your employees are often fully deductible as employee expenses. This can include company parties where only employees and spouses attend and meals served at the office for the convenience of the employer. Be sure to write down which employees attended and if anyone other than employees attended.
- Entertainment Meals — the costs of entertaining clients, vendors, associates, etc. are generally 50% deductible and closely scrutinized. If audited, the IRS will want to see documentation as to who attended and why it was "business related."
When incuring meal expenses, it is important that a business communicate to their bookkeeper which of these categories the meal falls into. Each is deductible to different extents, subject to different rules, and appear in different places on the tax return.
