There are several categories of Meals and Entertainment so I thought I’d review each so that you can give us a proper accounting when you provide tax information.
Business Trips – When travelling away from home on business, the following items are deductible:
- Transportation between home and business destination are fully deductible. These are planes, trains, auto rentals, taxis, etc. If using your own vehicle, then you will either deduct at the standard mileage rate or actual expense method, whichever you’ve chosen
- Hotel and lodging – keep your receipts, no standard allowance method here
- Meal costs – you can either claim actual meal costs or a daily meal allowance. Either way, these are only 50% deductible and need to be tracked separately from 100% deductible items.
- Tips, laundry, cleaning, baggage charges,
- Entertainment costs while travelling are deductible at 50%. Again, keep these separate from your 100% deductible items
- Want to take a cruise ship to your business destination? IRS allows you to deduct 2 times the highest per diem travel rate for travel in the U.S. multiplied by the number of days at sea
Business/Vacation Trips Within the U.S. – if your primary purpose of travel is business but you spend a few extra days at your destination, here are the deductible items:
- All transportation to and from the destination
- Lodging and 50% of meals during the trip even if you spend time vacationing during the business portion of the trip. So, if you travel to a business conference and spend an evening at a show, your dinner that night is deductible at 50% since your trip is a business trip but you’re not going to get away with the show admission unless you are entertaining business associates.
- If you extend your stay for personal time, the hotel, meals and transportation incurred during the extended time is not deductible although return travel is.
- But, if you extend your stay over a weekend to take advantage of discount airfare (often to include a Saturday night) then yes, the additional hotel and meals costs are deductible (50% for meals) because you are cutting the cost of the travel
Travelling with a spouse gets a little tricky. If your spouse is not employed by your employer or your business, and has no business purpose for the trip, then spouse’s expenses are not deductible. So, travel and meals cannot be deducted but you don’t have to allocate the cost of your hotel room to your spouse. You can still deduct 100%. However, if your spouse participates in a client entertainment event, the costs are deductible. The IRS recognizes the value of having a spouse at your side during a dinner or entertainment event and allows for the deduction, although at 50%.
Costs of entertaining business customers at home is deductible provided a business discussion occurs before, during or after the meal. Be ready to prove your motive and keep receipts and a list of attendees.
Club Dues – You may not deduct dues for country clubs, golf and athletic clubs, airline clubs, hotel clubs, business luncheon clubs and other clubs organized for business, pleasure, recreation or other social purposes. However, IRS regulations generaly allow a deduction for dues paid to civic or public service organizations, professional organizations and chambers of commerce.
Exceptions to the 50% rule for meals and entertinament – You can deduct 100% of meals and entertainment in the following circumstances:
- You are reimbursing expenses to an employee or contractor and they will be treated as compensation to the recipient
- As an employer you incur expenses for recreational, social or similar activities for the benefit of employees who are not solely owners. So a company picnic or ski trip is 100% deductible but the costs of a similar function open only to the owners is not.
- Events made available to the general public. For instance you hold an investment dinner at a local restaurant and invite the public. That’s 100% deductible.
- Food or beverage provided to employees as a “diminimis fringe benefit”. So on-site cafeterias, soda machines, snacks, etc. can be deducted at 100%
And, lastly, the always interesting SkyBox. SkyBox or suite rentals are deductible but limited to the face amount of the non luxury box seats for the same event. And, those costs are only deductible at 50%. So, if you have 10 seats in your SkyBox and a non-luxury box seat costs $100, then you can deduct $1,000 (but only 50%) for the night of the event. This only applies if you rent the suite for a number of games. It’s ok to rent a suite for a night and invite the office.
Of course, if you have questions, let us know. The primary purpose of this article is to provide guidance on how to separate costs that you provide to us so that we can properly deduct at 50%, 100% or 0%.