IRS Audit, IRS Audit Help, IRS Audit Process

When Can I Deduct My Food?

June 13, 2013 - IRS Audit, IRS Audit Help, IRS Audit Process

Nothing is deductible. Unless Congress says it is, of course. It is our elected Senators and Representatives, our Congress, that make the tax laws. It is the Internal Revenue Service that is charged with enforcing the tax laws. All income is taxable. The IRS expects you to report all of your income. When you take a deduction, you are subtracting that deduction from you income and you pay less tax. I want you to pay your lowest legal tax, not a penny more. And to do that well, I think you need to know the rules of this tax game. Generally, the cost of food is not deductible. We all have to eat. Food is a personal expense. But food can sometimes be a business expense. And business or job-related expenses can be deductible. You just need to structure the circumstances. Most of the time my husband does the cooking. He loves to cook. He is a good cook. I can cook too. But when I cook now, I make reservations. 🙂 Not long ago we went to dinner at a popular restaurant. The food is always good but this night it was very noisy. I was thinking how hard it would be to have a business conversation in such a noisy place. When you want to deduct the cost of your meals, you need to do certain things. First, there must be a business purpose for this meal. How do you conduct business over a meal? There are several different ways you might have a deductible meal. Is this a business meeting in your place of business? Are you the business owner feeding your employees at a meeting? That meal could be 100% deductible. Are you the business owner entertaining customers at a get-together? Are you a business person entertaining a client at a restaurant. Are you taking a customer or a client to a social event? Those meal expenses could be 50% deductible. Why only 50%? Because the cost of your own meal is not deductible. The cost of your guest’s meal is. But you are not looking at who ordered what, just the whole bill, including tax and tip. How do you make these expenses deductible? DOCUMENTATION is the key! Recordkeeping is what protects your deduction. The expense must be directly related to conducting business. Your objective must be to generate income. After all, this is INCOME tax we are talking about. The business can be conducted immediately before, during or immediately after the meal. The meal cannot be lavish or extraordinary if you want the government to pay for it. Isn’t that what we’re asking when we reduce the income we pay tax on by taking an allowable deduction? Meals with co-workers or associates are generally not deductible. The IRS says you don’t need an actual receipt for meals under $75, but I still encourage my clients to keep all of the receipts you can for any tax deductible expenses. You do still need records to substantiate your deductions. Your records do still need to show for each separate expense: the date, the name of the place, the business purpose (who you entertained), and the amount spent. This amount can include the cost of the meal including tax and tip. I ask my clients if the remember the 5 “w”s of journalism? Write down WHO your entertained, WHAT was the purpose of your meal or event, WHEN (the date) you did this, WHERE you went, WHY this is going to help your business and finally, How Much did you spend? If you do not keep adequate records, you can lose you deduction. So you decide. Is your deduction worth the extra time to protect it, to save it?