Meal and Entertainment Rules
Defined
You may deduct the cost of business related meals and entertainment.
Includes
This includes meals eaten when traveling out of town overnight on business. It includes bona fide business related entertainment. This essentially means you must be entertaining someone who is a customer, vendor, potential customer or vendor, or anyone who can legitimately help you in your business. It also allows for meals purchased for employees for the convenience of the employer.
Limit
Meal and Entertainment expenses are limited to 50%. The remaining 50% is nondeductible. Company picnics and occasional parties are not limited by the 50% rule and are 100% deductible.
Excludes
This excludes the lunch you eat by yourself while in town. You cannot deduct social/golf/health club etc. dues; but you can deduct the cost of taking a business associate to your club. There are a lot of exclusions and special rules relating to meal and entertainment deductions.
Tax Records
Keep cancelled checks, credit card receipts, invoices and Meal and Entertainment Records. Meal and Entertainment Records must include date, place, amount spent, names of people involved and business purpose. Use the enclosed forms to keep track of your expenses.
Tax Strategy
Whenever you can, mix business with pleasure.
Beware
Meals and entertainment expenses are often disallowed by the IRS and the courts because they are deemed not to be actual business expenses and or they are not properly documented.