If you’re a real estate agent, or small business owner, or self-employed contractor, you may be missing a powerful tax deduction because your accountant is too conservative.
Too conservative to take meals and entertainment write-offs that are totally legal and 100% compliant with the rules outlined in the IRS code.
Here’s the basic rule. You can deduct as a business expense the cost for meals with abona fide business purpose. This means whenever you have coffee, lunch, etc with clients, prospects, referral sources, and business colleagues.
So let me ask you – when do you ever eat with someone who’s not a client, prospect, referral source, or business colleague?
If you’re in a business like real estate, or you’re a freelancer, or consultant, where you’re marketing yourself, the answer might be “never.” Be as aggressive as you can with what you define as bona fide business discussion!
At Starbucks or your favorite restaurant…
The general rule is, you can deduct 50% of your meals and entertainment, so long as it isn’t “lavish or extraordinary.” The IRS knows you have to eat, so you can’t deduct it all. But they’ll meet you halfway.
At concerts or sporting events….
You can deduct entertainment expenses if they take place directly before or after substantial, bona fide discussion directly related to the active conduct of your business. You can deduct the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips.
At home…
But let’s take this one step further. How many of you entertain at home? Do you ever discuss business? Are you deducting those meals, too? There’s no requirement that you eat out. Don’t forget to deduct home entertainment expenses too!
At your desk or ‘back office’…
You don’t need receipts for expenses under $75. But you do need to record the five pieces of information listed on the right side of the slide in your business diary or records. The five pieces are: how much you paid for the meal, the date of the meal, the place where it takes place, the business purpose of your discussion, and your business relationship with your guest.
So maybe the problem really isn’t with your CPA being too conservative.
Maybe the problem is your record-keeping. How bullet-proof is it? Do have a system to track these expenses, or do you treat accounting and taxes like it’s a once a year event?
Accurate, complete and up-to-date bookkeeping can be the #1 most important factor to reducing your taxes. The good news is, we can help you spend less time chasing receipts and tax details and gain more time to focus on growing your business with our small business bookkeeping services. Click here to book a time to connect by phone or in person if you’d like to learn more.