Today, I’m talking about…
Hi, Evelyn here. Today I’m talking about meals and entertainment expenses, specifically local meals. So let’s talk about deducting meals. The amount to deduct meals you must maintain records to show the amount of the expense, the time, and place. This purpose of the expense and the business relationship between the taxpayer and the person eating with the taxpayer. So in other words, to deduct the meal, you have to be able to show proof that you’re deducting it. Because IRS might request records, and when they do, you’ll have to have these records to show all of these four things. So local meals are deductible when you’re actually having a meal with a person for business purposes. That includes maybe you’re dining with a customer, maybe you take a perspective employee out to eat, that’s when you deduct local meals.
So when you’re driving on your way to work and you stop at McDonald’s and get you some breakfast, that is not a deductible meal expense. That’s just part of your living expenses, and just like everybody else, you don’t get to deduct that for business. This is different for meals, which is out of town, and we’ll talk about that next in the next video. And meals are limited to 50% deduction. But however, if you’re a transportation worker, you can take up to 80%. Exemptions to the 50% rules are meals reimbursed by the customer. In this case, the customer is subject to the 50% rule. So in other words, you turn the invoice to your customer, the customer reimburses you 100%, and… But that on the tax return they can only take out 50%.
Meals provided to the general public for promotional purposes are not subject to the 50% rule. Charitable deduction for meals while traveling for qualified charitable purposes are not subject to 50% rules. And medical expenses for meals as an inpatient are not subject to the 50% rules. In 2018, you cannot deduct meal expenses if it’s not part of a business expense. Unless, you’re in the National Guard or a reserve member, you’re a qualified performing artist, or fee basis state or a local government official. So in other words, you’re a local government official that operates on a fee basis. There’s no deduction for entertainment beginning in 2018. However, if you deduct the meal portion with the entertainment, as long as you can separate the entertaining cost from the meal, or the meal cost must stay separately from ensuing cost, and you cannot inflate the meal cost just to take a higher deduction.
So keep in mind that when you do go out and entertain your customers or your clients or your employees by golfing, whatever it is, that entertaining portion cannot be… But as for the golfing or before you go out for a meal and you talk about business, you can keep the documentation required. Then that is… You can still take out that meal portion 50% of that as a business expense.
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