Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Deducting 100% of meals?

Posted by taxguru on April 3, 2008

Q:

Subject: Meals 100% Deductible for Strategic Planning Meeting?

Kerry,

I am a sole practitioner and I came across this article on CNN Money.

Linda Rey (pictured at right, with sister Laura and father Frank) is co-owner of Rey Insurance, a broker based in Sleepy Hollow, N.Y. She and her partners (who also happen to be family members) hold a monthly dinner at a restaurant, which they treat as an offsite strategic planning meeting (100% deductible) rather than a business meal with a client (50%). Even with coffee and Dunkin’ Donuts for the Friday morning meeting, she always takes the full 100% deduction, while many companies wrongly file this under meals and take half. “I pay careful attention,” says Rey. “Otherwise you end up giving a lot of money away.”

I have never heard of deducting meals at 100% for an off-site strategic planning meeting. I researched this issue and could not find support their comment. I can’t see where this type of meal falls within the 100% allowed M&E categories. Everything I find says 50% disallowed for this type of expense. Are you familiar with deducting meals at 100% for an off-site strategic planning meeting (and morning donuts), or is this just another case of the media giving false information which makes us explain why it is wrong to our clients.

Thanks,

A:

I’ve heard of people trying this; but I can’t agree with the logic or stand behind this idea.

As we know, there is a lot of the honor system in the tax game in regard to how we post expenses. Calling something a “Meeting Expense” effectively hides it from the 50% limit that business meals have.

I browsed the online QuickFinder and the printed and WebCD TaxBooks for any mention of 100% deduction for meals at strategic planning meetings and came up empty.

For example, QuickFinder online had this for a similar situation:

Home Meetings
Direct sellers who hold business meetings in their homes can deduct expenses for the meetings as entertainment expenses and expenses related to the business use of their home only when they meet certain tests.

The expenses of entertaining business associates in the direct seller’s home are deductible as entertainment expenses if they meet the rules discussed under Meals and Entertainment. The expenses of maintaining the direct seller’s home as a place of business are deductible if he or she meet the tests discussed under Business Use of the Home.

Example: Barbara and Bill hold bi-weekly meetings in their home for the direct sellers who work under them. They discuss selling techniques, solve business problems and listen to presentations by company representatives. Because the meetings are for business, Barbara and Bill can deduct 50% of the cost of the food and beverages they provide. See Deduction Limit. They keep a copy of their grocery receipts for these refreshments, and record the date, time and business nature of each meeting. Be­cause the meetings are held in their living room rather than in a special area set aside only for business, they cannot deduct any of their home expenses for the meetings.

I’ve had cases where meals were one part of a business related meeting that had a single admission price. I have posted those to 100% deductible Meetings expense. However, where the meeting is at a restaurant and the full amount being paid out is for food, I have to believe that the deduction would be limited to the standard 50%.

It would be interesting to hear what other tax practitioners have to say about this.

I feel that those people bragging about deducting 100% of their meals in that article had better prepare themselves for an IRS audit which will also delve into other creative deductions they may be claiming.

Thanks for writing and good luck with the rest of this Tax Season.

Kerry Kerstetter

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