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Hip, hip, hooray!

If you’re running a small business, then you should rejoice! Chances are you occasionally take prospective clients out for a meal or have a business meeting over lunch, right? Well, the IRS has officially released an update to the meals expense as part of the Tax Cuts and Jobs Act.

This is good news! Rejoice!

Meals expense is officially back on the table as a legitimate business expense and deduction. It’s still only a 50% deduction, but this is great news for digital nomads.

No need to worry about taking this on your 2018 tax return.

Let’s take a look at what the update says.

Meals expense

Under this new IRS guidance, you may deduct 50 percent of any client and prospect business meals if

  1. the expense is an ordinary and necessary expense under Internal Revenue Code (IRC) Section 162(a) that is paid or incurred during the taxable year in carrying on any trade or business;
  2. the expense is not lavish or extravagant under the circumstances;
  3. the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

Proof for meals expense

This part hasn’t changed. You must provide proof for the meals expense.

To prove your business meals, follow the two easy steps below:

  1. Keep the receipt that shows the name of the restaurant, the number of people at the table, and an itemized list of food and drinks consumed.
  2. On the receipt, record the name or names of the person or persons with whom you had the meal and also record the business reason for the meal.

To make it simple to keep this receipt, I suggest taking a photo of immediately. This way the receipt gets digitally recorded and there’s no need to panic should you misplace the original.

In case you don’t get a receipt, make sure to make a written note of the expenditures immediately afterward. For example, if you take a business client to a baseball game and purchase food and drinks while sitting in the stands,

If you charge a business meal to a credit card, the statement provides your proof of payment. When possible, I always recommend paying by credit card or writing a check so there’s clear proof of payment. This helps avoid any issue later during an audit. 

Proof of payment is not proof of what you purchased, so in addition to proof of payment, keep the receipt with the notations as described earlier. With this combination of proof of payment and receipt with notations, you have what we call audit-proof documentation.

If you would like to review your business meal deductions with me, please get in touch.

RV Tax Queen

I’m a numbers person—but don’t let that scare you. I’ve been an enrolled agent (EA) since 2014 and a nomadic business owner since 2016. Because I’m a nomad myself, I know exactly how stressful life on the road can be.

Course: Finances for the RV Entrepreneur

By the end of the course, you’ll understand how to register your business, stay organized with expenses and income, and keep on top of your tax obligations.

Disclaimer:

This website is for general information only and is not intended to substitute for obtaining legal, accounting or financial advice. It is not rendering legal, accounting or other professional advice. Presentation of the information on this website is not intended to create a client relationship. For specific tax assistance please consult a tax professional on an individual basis.

While I make every effort to furnish accurate and updated information, I do not guarantee that any information contained in this website is accurate, complete, reliable, current or error-free. I assume no liability or responsibility for any errors or omissions in its content.

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2 Comments

Join the discussion and tell us your opinion.

17 Ways The Tax Cuts and Jobs Act Affects You – Tax Queenreply
at

[…] The old law allowed client and prospective client meals to be 50% deductible as long as it was related to a trade or business. The new law changed the language for meal deductions. However, the IRS has issued guidance that business meals with clients continue to be deductible. Read more about business meals deduction here. […]

6 Simple Small Business Tax Deductions for RV entrepreneursreply
at

[…] you discuss business with your customers, clients, or employees over a meal, coffee, etc. then the cost of your meals may be deductible as a business expense. The meal MUST be directly related to or associated with your business. […]

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