By John J. Kasperek, EA, President
Many small business owners are too aware of the 50% limitation to deduct business. There are exceptions that allow for a 100% deduction of business meals that should not be overlooked:
· Office Snack & Drinks. Employers can deduct 100% of the cost of providing employees with free coffee, soft drinks, donuts, snacks, etc. consumed on the business premises.
· Company Parties. Employers can deduct the full cost of providing food and beverages at company outings primarily for the benefit of certain employees. Examples include holiday parties or summer picnics.
· Meals Served on Company Premises. Employers may provide employees with meals at work and claim a full deduction (and employees do not have to report the value of the meals as income!). Meals must be provided for the employer’s convenience, a challenging rule.
· Promotional Activities Available To The General Public. Meals open to the general public are 100% deductible. Examples include free food at a trade show, seminar, or exhibit, an open house at the place of business, as an advertising gimmick to draw customers. Liquor or wine may be included.
· Charitable Sporting Events. Tickets or packages involving sporting events are fully deductible even if a meal is included. To qualify, the event must give 100% of its net proceeds to a registered charity and is staffed primarily by volunteers. The classic example is a charity golf tournament with a meal provided as part of the deal.
Everybody likes a good soiree. For a soiree to even be deductible under the 50% rules, one must conduct business before, during or after the event. To achieve a 100% write-off, it is critical to carefully plan and document expenditures using the rules above.
By following the rules, the small business owner can build goodwill for the business AND deduct ALL the costs!