Meals and Entertainment Expenses: A Quick Guide for Business Owners

Managing meals and entertainment expenses is a crucial aspect of running a business. These expenses can have significant tax implications and affect your company’s financial health. 

Understanding what qualifies as deductible, maintaining accurate records, and staying compliant with IRS guidelines can help you optimize these costs and maximize deductions.

Meals and entertainment expenses typically include costs incurred for business purposes, such as client meetings, employee events, and meals during business travel. However, the IRS has specific rules and limitations on what can be deducted.

Generally, 50% of the cost of business meals is deductible, while some meals provided at company events or included in employee compensation may be 100% deductible.

To claim these deductions, detailed records are essential. Keep all receipts, document the business purpose of the meal or event, and record the names and business relationships of participants.

Proper record-keeping not only ensures compliance with IRS regulations but also helps manage and control these expenses effectively.

Best Practices for Managing Meals and Entertainment Expenses

Establishing a budget for meals and entertainment expenses is a good starting point. This helps control spending and ensure that these costs do not escalate.

Using business credit cards for all related expenses can simplify tracking and auditing. Regularly reviewing and auditing these expenses ensures they align with your budget. Still, there are a few other steps you can take to make sure you’re accurately tracking and managing your meals and entertainment expenses:

#1. Track Non-Deductible Expenses

It is important to note that not all meals and entertainment expenses are deductible. Costs deemed lavish or extravagant by the IRS are not deductible, and personal meals that are not business-related cannot be claimed.

Staying informed about recent tax law changes is crucial, as these can affect what is considered deductible. For instance, the Tax Cuts and Jobs Act of 2017 eliminated deductions for entertainment expenses, making it essential to distinguish between meals and entertainment for accurate tax reporting.

#2. Manage the Impact on Financial Statements

Accurate categorization of meals and entertainment expenses in your financial statements is crucial for reflecting the true cost of business operations. This not only aids in financial planning but also provides transparency and accountability.

#3. Consider Tax Planning Strategies

Effective tax planning can help maximize deductions. Plan events and meals strategically to ensure they are business-related and comply with IRS guidelines. Consulting with tax professionals can provide additional insights and help identify potential savings.

What Happens Next?

If you’re unsure how to manage your meals and entertainment expenses or need guidance on optimizing your business’s financial health, consider taking our financial health check quiz. This can provide valuable insights and help identify areas for improvement to ensure your organization remains financially healthy and compliant.

Proper management of meals and entertainment expenses can lead to significant tax savings and improved financial health for your business. By understanding IRS guidelines, maintaining accurate records, and implementing best practices, you can ensure these expenses contribute positively to your business operations.

If you want more clarity and direction regarding your financial accounts, expenses, and budgets, connect with the ModVentures team today! Click here to book a free consultation.