Rules and Regulations for Meals & Entertainment Write-Offs
1. Discuss or conduct business – Any entertaining that you do or any meal that you enjoy must be directly related to your business or a discussion must occur preceding or following the meal or entertainment that is in direct relation to your business.
This means that if you are a business owner and you take a client to lunch and discuss the ball game and not business, you may not be able to expense the lunch as a write-off.
The same goes for a party building goodwill. You may throw a party and show the latest product launch and discuss sales and productivity prior to or after some form of entertainment.
Meals provided to employees during normal business hours for an employer’s convenience (i.e. the employer cannot afford to have the employees break for lunch, etc.) are 100% deductible and should be tracked separately. All other meals are tracked at a 50% rate.
2. Be smart about your deductions – Do not try to deduct memberships or dues to country clubs, athletic clubs, spas, golf memberships, tournaments, vacations, cars, resorts, and other amenities. The environment must be conducive to conducting business and the IRS will definitely take the environment into consideration. (Do not attempt to write-off a party at a strip club as a business expense!)
3. Invite the right people – Your guest list matters. You may only write-off 100% of a party if it is a) open to the general public or b) for employees and their spouses. If it is for clients and independent contractors whom with you do business then the deduction is only 50% of the total cost.
4. May not be “lavish or extravagant” – Three words … Keep it simple! Play it safe and keep it simple. Do not throw a catered, black tie affair, serving caviar and truffles if the value of the soiree is not aligned with your company’s budget. You will not be able to “woo” a client at a 5-star restaurant if it is not in your budget.
5. Keep proof of all meals and entertainment expenses – If you throw a party to announce a new product rollout, keep the invitation, save a sign-in guest book or take pictures or a video. Save RSVPs so that expenses can be tracked correctly.
Keep all receipts for any and all purchases. If possible, write the date, location and names of those entertained.