The number one most misunderstood, misused, and misapplied deductions are the meals, entertainment & mileage deductions.
Most people do not understand the deductions but I can't say the IRS code has made it easy to understand either. Often times, business owners, including independent contractors, avoid deducting meals or they deduct all meals.
Meals are categorized with entertainment in the IRS business code. Because meals with a client are considered entertainment of the client. Meals fall into 1 of 3 categories for most business owners. There are exceptions for government employees or contractors or is the standard in your industry.
Watch the video for pointers on applying this deduction.
Meals are deducted at
The standard for meals is 50 % deduction. The exception is if business owners charge a client for the meal with full disclosure of purchase, itemized receipts, purpose, date and time, and client. The meal should be with the intent to do business such as a sales meeting, business meeting or signing a business agreement.
The meals and entertainment are fully deductible for the company or business owner. Otherwise, the meal is 50% deductible. Many business owners lose thousand of dollars at the end of the year once they realize only 50% of the meals are deductible.
Create a plan for best use of your funds or create a plan to factor in the meal expense into your initial sign on fee to recoup the other 50% of expenses. Also, track each type of meal expenses in bookkeeping. Such as Meals-Travel, Meals- Client, Meals- Networking, Meals- Events.
Related: Read "Mileage Tracking Saves Thousands of Dollars"