in this video i'm going to be discussing deducting meals as a business expense
so many business owners get this wrong and i just want to clear up some things
by answering a few questions like what meals
are not deductible at all 50 deductible and 100 deductible what do you need to
do for record keeping uh what not to do
when deducting meals i'm going to provide you some helpful
hints and also you know answers to the question as
to why does the irs even give you a deduction for meals
since everyone kind of needs to eat anyway right
so for those of you who don't know who i am my name is Navi Maraj
i am a cpa who specifically helps real estate professionals that's you
the real estate agent realtor or broker even
um but you know this this video is talking about the meals deduction and
is going to cover all small businesses but typically i create videos or i do
consulting with my clients to help them save thousands of dollars
in taxes so if you've subscribed to the channel
or you've watched the other videos when i was talking about tax planning
and the importance of tax planning versus tax prep
i talked about meals in the maximizing deduction sort of
section of um tax planning and so this is sort of a series of videos that
i'm putting out so if you haven't subscribed you might want to do that now
so you don't miss out any of those other videos
so let's let's talk about the substantiation behind this
deduction anyway right why would the irs even
want to give us a deduction about business meals right
so let's think about it like this because i think if you think about it
like this um you really won't have any trouble in
understanding well should i deduct this business meal
or not right so everyone has to eat so so why deduct anything so
if you have this mindset um or i should say if you have the mindset
that this conversation is taking place during a meal and it's
gonna help my business grow revenue or perhaps reduce expenses
and what will then happen is i will have more profit in my business
and that's more profit that the irs will be able to tax right
so if you think about it from that perspective it kind of makes sense as to
why the irs even is willing to give you this meals deduction
all right so let's talk about deductibility for a
second again i mentioned that there are some meals that are
not deducted at all 50 and then 100 deductible so meals that
aren't deductible at all is you having a meal by yourself
when you're not traveling for business right so if you're just busy throughout
the day and you need to grab lunch or grab a meal
that's not something you can pull out the business credit card for and swipe
it so that meal would be not deductible at all
the next grouping is 50 deductible and so most business meals
fall under this category right so this would be having a business conversation
with an employee a vendor a client a prospect
a contractor any conversation that you have that's business related
and then sort of there happens to be a meal taking place during that
conversation so that's 50 deductible um 100 deductible
comes into play when you're having a meal for all your employees so this is
probably you have quite a few employees and you're having this meal as like a
social activity so this could be a holiday party for example or you know
a summer picnic for example all the employees are getting treated to
a meal and therefore you can deduct 100 of that meal um
for my realtor clients watching you know meals that you purchased for an open
house or perhaps you know wine and cheese that you have
for a open house those are a hundred percent deductible
but what you need to be careful of is in your accounting software or however
you keep track of that you shouldn't throw that into the
category of meals or you should have you know maybe two categories for me is
one that says 100 and one that says 50 because your accountant typically is
just going to see meals and just chop that number in half
and you're not going to get the full deduction for it right
let's talk about record keeping next so this is really simple but people
over complicate it after you have that business meal and you take care of the
bill on your receipt just write the name
um what the business discussion was about that you had
and take a picture of that receipt that's going to accomplish quite a few
things obviously you're going to have the name and the business discussion
summary on there but also you'll have the date on there
you'll have the vendor that you had the meal at and the amount will also
be there as well so here's what not to do okay what not
to do is not to be lavish or extravagant with
your meal so you can't go out there and have a 200
meal and expect the irs to deduct 100 of that that's just not going to fly
right you need to be reasonable with some of this stuff
also you as the taxpayer or one of your employees
needs to be present at the meal so you can't tell a client oh yeah you know
order what you want at this restaurant i'm going to take care of the bill
and deduct that as meal expense that's not going to work
i hinted at this earlier but you don't deduct meals by yourself
unless you're traveling for business specifically like out of town right
so those meals that you deduct or that you have while you're out of town
on business are 100 deductible and those are allowed
but you can't again go through the starbucks drive-thru or whatever
grab a coffee and the duck that has meals expense so
here are some helpful hints that i'm going to give you about the meals
deduction um you can deduct meals with employees
and those employees include your spouse the thing is
again you got to be reasonable with this and your spouse should be on
payroll you know they should be actually working in the business
and you shouldn't take advantage of this this shouldn't be every lunch
because your spouse happens to be on payroll gets deducted right there should
be an occasional thing you can't have you know date night um not talk about
business at all and then swipe the business credit card
taxes and tips are part of the meal expense and are part
of that you know 50 deductible bills so i'm saying
the taxes on that meal and the tip that you leave the gratuity that you leave
is also part of that meal expense and that total bill
is 50 deductible you can use this deduction
even when you split the bill so if you're out with a vendor and your vendor
you know it's a good relationship that you have they they pay for their half
you pay for your half or what have you um that the amount that's built to you
is still 50 deductible don't think oh you split the
meal in half and you're really only paying for your
portion that it's not deductible you can still deduct that
a quick note i want to say a couple years back everyone used to talk about
meals and entertainment together it was like hey it was like what you couldn't
say entertainment without saying meals and vice versa
well entertainment is no longer deductible that happened a couple years
with the tax cuts and jobs act but meals um separately invoiced would
be let me give you an example of that the common example is going to a
sporting event right so you paid for the tickets for a
client or prospect or whatever you're there with them you go to the uh
you go to the event and then you want to go ahead and purchase
food and beverages and what have you well if you're invoiced separately
for those meals and beverages or if on the receipt or whatever there's
a separate line item for meals and beverages then you can deduct the
meals and beverage portion but not the entertainment portion of that invoice
all right so i think that about sums it up so
hopefully that cleared some things up for you
um like all of my videos i just want to make you aware of sort of the big
picture with some of these things it's advisable that you either consult
with me or your tax professional if you're
watching this on youtube or on my website
which is navimarajcpa.com all that information is linked in the
description below and you can get a hold of me via any of
those methods if you got value out of this video
please do subscribe because in the next videos
i plan to discuss travel as a business business deduction and also hiring
children yes you heard me right hiring children
as a strategy that can save you thousands of dollars in taxes so with
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