Are you watching what you eat at work? Though that may not seem like a tax question, how you account for meals can affect your business tax return.
One reason why: While you can generally deduct only half the cost of meals related to your business activities, the tax code includes specific exceptions that allow a deduction of 100% of what you spend on food and beverages in certain situations.
Here are three exceptions to the general rule.
* Meals provided to your employees on a social basis. That once-a-year holiday party qualifies for 100% deductibility as a “recreational, social, or similar activity,” as long as it is primarily for the benefit of all your employees.
* Food with nominal cost. Do you supply bottled water, morning-meeting donuts or office snacks for your staff? “De minimis” employee benefits — those small items your business pays for that are not considered taxable income to your employees — are typically 100% deductible.
* Items available to the public. Food served at seminars, promotions, or a “new office warming” reception where you invite the public is 100% deductible.
Remember that you’ll still need to keep detailed records to substantiate your deductions for meals and food served under these exceptions.
We’ll be happy to help you review your expenses and set up a system to account for items that qualify for a more generous deduction.David Bradsher, CPA