Using dining expenses as tax write-offs is one of the most commonly underutilized deductions by small business owners.
Business dining is critical for networking, money-making and plain “doing business.” The trick is making sure to get a write-off for the expenses and that these write-offs can stand up under audit.
First and foremost, remember the regrettable fact that dining expenses are limited by 50 percent. However, you need to keep track of 100 percent of these expenses; your CPA or tax professional will take this information from you and ultimately limit them by 50 percent on your tax return.
To help you track and account for these expenses, I have broken down your dining experiences into 3 categories.
General dining with someone else. Whether you’re dining with a customer, vendor, potential client, partner, officer, or even a family member who is part of your business, these dining expenses are considered tax deductible as long as you’re “talking business.” Make sure to document that you’re having a business conversation (I recommend making a note of it on your receipt) and keep your receipt. Smartphones make this process even easier. Take a picture of your receipt, sync it to your Cloud or other storage site, and you don’t have to think about it again. Although your CPA won’t ultimately need to see your receipts, I consider them to be the best form of audit protection.
Another important point to remember for audit protection purposes is that cash should be avoided at all times when you’re looking to use dining expenses as tax write-offs for your business. Dining purchases made on business credit or debit cards are trackable, and in the case of an audit can always be reproduced, but the receipt is still required. Using cash for these expenses is considered much riskier, can tend to make the situation worse, and is a habit that I highly advise against.
General dining by yourself. As a result of prior court and IRS rulings, dining by yourself for business can actually be deductible as well. Essentially, when you’re traveling further than a reasonable commute from home for business, dining constitutes a tax-deductible expense. If you travel regularly or forget to keep your receipts, many business owners look to Per Diem guidelines for breakfast, lunch, and dinner costs to better track their dining expenses.
Business entertainment-related dining is also considered a legitimate dining expense, but it needs a separate line item in QuickBooks. For example, while hotel expenses are 100 percent tax deductible, room service expenses are only 50 percent deductible and must be distinguished as so.
Event food and catering. Food that is brought into the workplace for a workshop, company party, or other business-related event are 100 percent tax deductible and are especially important to track. For example, if you’re having a company picnic and purchase food and drinks at a grocery store for the event, the full amount of this cost is tax deductible. Again, being diligent about documenting these purchases is crucial.
Although business dining for an event at the office or a separate location is fully deductible, it is important to note that this does not include company parties at a restaurant, which would still be limited by 50 percent.
Deductible expenses while dining with someone else are not limited to the main course; appetizers, drinks, and even the tip are considered part of the total expense for this particular tax deduction.
In summary, one of the benefits of owning your own business is being able to legitimately maximize your dining expenses. By documenting and separating these different dining expenses for your business tax return this year, you will reap the rewards of maximizing your deductions.