Deducting entertainment and meals is often a gray area that people take advantage of. My general rule of thumb is that as long as you don’t abuse the tax code, you should be fine. I use what I call the “bullshit” code. If I can tell my wife with a straight face that a particular expense was used for business purposes, and my wife doesn’t think its BS, its usually good enough for me.
Officially though, anything you expense must obey the following rules.
- The entertainment expense must be reasonable and accepted in your field of business – For example, if I’m selling vegetarian food over the internet, it most likely wouldn’t fly if I took the employees out for a steak dinner. In any case, you get the point.
- The purpose of the entertainment expense must be to bring in revenue – For example, if you are hosting an event to promote your company, this is perfectly acceptable. Even if you and your business partner go out to eat to discuss the business, your meal can be deducted as well.
- The expense can’t be extravagant – Basically, this means don’t abuse this deduction!
Anyways, entertainment is defined as any activity or recreation that directly for customers, clients or employees. Only 50% of entertainment and meals is deductible but these expenses can add up over the course of the year. For our store, my wife and I go out at least once every few weeks to discuss new ways to expand the business.
Learn other ways on how to save on your tax return
- Business Expenses: What You Can Deduct on Your Taxes
- How to Deduct Travel Expenses on Your Taxes
- How Much The Average American Can Save On Taxes By Having A Business
- How to Deduct Equipment and Supplies on Your Taxes
- Small Business Tax Savings – The Ultimate Small Business Startup Guide Part 4