BITE INTO SAVINGS: TAX DEDUCTIONS FOR BUSINESS MEALS
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BITE INTO SAVINGS: TAX DEDUCTIONS FOR BUSINESS MEALS
A good business plan includes a solid tax strategy. This article is your reminder to pay attention, not only to revenue and growth, but also tax deduction opportunities in parallel to profit. Deductions can be an important aspect of tax strategy, as – when recorded properly – can produce some valuable tax savings.
ATLAS knows how simple it can be for a business to put this plan into action. One easy (and delicious) way to maximize your company’s tax savings is by deducting business-related meals. Sounds yummy, right? Read on for more tea on this topic.
What are tax deductions?
Deductions, or “write-offs,” are expenses that reduce your taxable income; they do not reduce your tax liabilities directly. However, lowering your taxable income may result in lower taxes overall. Common personal deductions include home mortgage interest, medical expenses, and charitable contributions. And, as we’ve already noted, a common business deduction is meals. If you conduct business over lunch, or host employee-appreciation lunches for your team, you may see substantial tax savings on your next return.
Keep in mind, you will report your deductions a little differently depending on your business entity type. For example, sole proprietor business owners will include their business-related meal deductions on their individual returns (Form 1040), whereas corporations will include this information on their entity tax returns.
Types of Deductions
According to Forbes, there are two different tax deductions that are applicable, depending on the purpose of a business-related meal. Per the IRS, there may be some exceptions, so it is important you consult with your tax professional to ensure proper calculation of your business meal deductions.
50% deductible: This applies to meals/food eaten with business clients, in your office, during work-related travel, and at work events such as conferences (Forbes, 2024). A business owner or employee must be present at the meal to qualify, and the meal should be “reasonable and not lavish,” (sorry, you can’t eat at a $100 per plate steakhouse for every meal.)
100% deductible: If your company provides food and beverages to the public, or plans a holiday party for employees, businesses are eligible to deduct 100% of the cost (Forbes, 2024).
Though eligible expenses are generally 50% or 100% deductible, this does not translate to a dollar-for-dollar tax savings, due to the correlation between deductions and tax bracket. For example, a $1,000 deductible expense will translate to a $1,000 reduction in taxable income, but if you are in a 30% tax bracket, this would only reduce your tax liabilities by approximately $300. And, of course, this is another matter that is best left to your tax professional. Calculations such as these are not always a perfect science. The other numbers that feed into your tax returns have to be taken into account, as they could create a change to your tax bracket, taxable income, or overall tax liabilities.
So, what now?
The government can change laws and regulations at any moment. It is, therefore, helpful, as a business owner, to seek tax updates from your tax professional or CPA. Gaining professional assistance from tax experts will help you properly record your business-related meals, and other expenses, and optimize the tax deductions available to you.
Your advisor will also explain the correct process to record business meal expenses. For example, if you attend- and eat at- a sports game with a client, be sure to pay for the game tickets and food separately. Entertainment is not a viable business tax deduction, so if your meals are on the same receipt, they become ineligible as a write off (Financial Planner, 2024).
Being thoughtful about your expenses, recording them properly, and developing a clear understanding of what does or doesn’t qualify, may be just as important as making sure you have included said expenses on your tax returns. The reason being – if the information you provide to the IRS, via tax filing, does not meet their criteria – you may lose significant tax savings.
ATLAS stresses the importance of tracking your expenses timely, throughout the year. Ensuring your detailed records are always up-to-date, without having to backtrack, means your books are ready for review when it comes time for a mid-year check-in with your tax professional. Mid-year, your CPA can assist with questions related to business expenses, such as meals, and can advise you regarding proper recording, best practices, and keeping the necessary support. With this, your check-in prior to year end, will be much smoother, so you can feel confident heading into the new year, and tax filing season.
Per the IRS, what information must I keep, record, and submit if I hope to write off business-related meals?
- Expense Documents: Itemized receipts must list the location, date, and cost (including tax and tip). If needed, bank and credit card statements can provide further proof of the expense.
- Meal Details: Names of meal attendees and their relationship to the business, as well as an explanation regarding the business purpose of the meal. (Did you meet with a new client, or provide food for staff at a weekly team meeting in the office?)
Do you have business meals to deduct?
Business-related meals as a tax deduction, and ultimately a tax savings, can help business owners manage operational costs more efficiently. But a lot of the detail is best discussed with- or handled by- a trusted tax advisor. If you need to speak with a CPA about your business deductions, ATLAS can help! Click HERE to connect with an Advisor That Listens And Serves today, to put your business in the best possible tax position for 2024.
Sources used in this article:
https://www.financial-planning.com/news/how-to-use-tax-deductions-for-business-related-meals
