What in the heck am I talking about? Why, business meals and entertainment of course!
Tax reform just made it a little harder for the commoner to determine if the meal they are eating, the event they took their client to or the event they catered is going to be tax deductible for their business. And there is no shortage of articles out there that explain the “rules.” For example, you’ve probably heard that entertainment is no longer deductible – at all. You heard right! The 50% deduction for entertaining your clients is gone. You also probably heard that the IRS has tightened the rules on meals. In general, most meals with clients, prospects, and staff will be 50% deductible as long as business is conducted. There are some exceptions for office holiday parties and meals at marketing events; these meals may be 100% deductible. So, how can you best prepare for the end of the year so your tax advisor can advise you properly and capture every deduction you are entitled to?
Use a mileage program. Did I just switch gears? Not really. You can still deduct the mileage for the drive to and from the business meal or event. Use a mileage tracking program like MileIQ to document and track your business miles. This program runs in the background of your phone and automatically captures every trip you take. It’s a snap to add a description and business reason, list the attendees, document the miles, and have gps documentation for your tax records.
Adjust your Chart of Accounts. Do you have the type of business where you host or attend marketing events and provide the food? Not sure if the meal you were required to pay for at your local chamber event is 100% deductible or not? Goodbye to the old “Meals and Entertainment” category and hello to an expanded list that helps you easily identify the meals that you need to discuss with your tax advisor. Entertainment should be categorized separately, and meals should be split into categories such as:
Meals – Celebratory
Meals – Marketing
Meals – Professional Meetings
Document. Document. Document. And snap some pictures of it all, too. None of this even matters if you don’t document your expenses properly. Here are some suggestions to help you tackle this and become a tax deduction guru.
- Make it a habit to document directly on the receipt the attendees and business purpose.Do it right away before you even leave the restaurant.
- Snap a picture of your receipt directly into your accounting program on the spot. Are you the type of person that likes to touch things once and get it off your to-do list? Even if you aren’t, QuickBooks Online and Xero make it easy for you to become that person. You can quickly snap a picture of your receipt, enter the business purpose and attendees, select the category, and it is in your books. Here are some screenshots of what you see on your phone for QuickBooks (left) and Xero (right).
- Use an expense program like Expensify. This is an excellent option for businesses with executives and sales staff that often entertain and dine using a company card or are being reimbursed for their expenses. It’s time to ditch the paper expense report for a more automated approach. This option lets you to snap a picture too.
Follow these steps, snap some pictures and you never know, your bookkeeper might even take you to lunch to chow down and be merry.