Q: Can I still deduct business meals and entertainment expenses
Many business owners, self-employed individuals, and other taxpayers are aware that business meals and entertainment expenses
are only 50% deductible.
A business can deduct 50 percent of business-related meals and entertainment expenses
. The IRS has no rule on how much of the meal time must include business discussion, but to be deductible, the meals or entertainment must be able to pass the directly related and associated tests, and, of course, business must be on the menu.
The amount identified for the deductible ticket price, along with any food and beverage expense, is deductible subject to the 50% limit generally applicable to meals and entertainment expenses
. Any amounts identified as advertising expenses should be fully deductible as ordinary and necessary business expenses.
Increasing the deductibility to 80 percent of business meals and entertainment expenses
will aid small business owners who use meals to market goods and services, retain customers and attract new business.
Under the "regular federal per diem rate" method, an employer can deduct its employees' ordinary and necessary business travel, meals and entertainment expenses
reimbursed under an accountable plan.
* Meeting with Tax Legislative Counsel and other Treasury and IRS representatives to discuss proposed revenue procedure on statistical sampling in respect of meals and entertainment expenses
The proposal--a revision of a similar wage package that contained a slightly smaller tax cut provision recently passed by the Senate--would expand a tax credit for employers who hire relatively unskilled workers; provide tax relief for the timber industry; make meals and entertainment expenses
80 percent deductible; make health insurance for the self-employed 100 percent deductible; and repeal excise taxes on liquor, beer, and wine producers and marketers.
This plan would create a tax deduction for spousal and dependent travel, and would boost the tax deduction for business meals and entertainment expenses
to 65 percent for businesses with annual incomes of less than $5 million.
The Tax Court held that, under applicable revenue procedures, the entire per-diem travel allowance paid by a trucking company to its drivers was subject to the 50% deduction limit on meals and entertainment expenses
, because it was computed on the same basis as wages.
Meals and entertainment expenses
qualify for a deduction if they meet at least one of two tests.
In "The High Cost of a Free Lunch," (JofA, June00, page 61) the author says IRC section 274(n)(2) provides several exceptions to the 50% limitation on meals and entertainment expenses
. Among the exceptions listed are "expenses directly related to the business meetings of employees, stockholders or directors." I am unable to find this exception explicitly noted in section 274(n)(2).