Real estate agents and self-employed individuals miss out on thousands of dollars in meals and entertainment deductions because their record-keeping has holes in it, or their accountant is too conservative and hesitates to take legitimate deductions.
Here’s three simple steps to take to maximize your legal deductions in this area.
1. Respect the IRS–don’t fear it!
The basic IRS rule is simple: you can deduct cost for meals with a “bona fide business purpose”. This means any time you meet for coffee, lunch, etc with a client, prospect, referral source, and business colleague, and have a legitimate business discussion, it’s deductible.
So let me ask you this: when do you ever meet and eat with someone who’s not a client, prospect, referral source, or business colleague? If you’re in a business like real estate, financial consulting, or business coaching, where you’re marketing yourself, your answer might be “never.”
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.
2. Don’t forget to deduct those times when you entertain at home.
When you entertain at home, via holiday party, or neighborhood barbecue, or dinner with friends, 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.
3. Be diligent about record-keeping and receipts.
The good news is you don’t need receipts for expenses under $75. But you do need to record these five pieces of information: 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.
You can write info directly on a receipt, or simply record it in your business diary or records. And you should do it as close to daily as possible.
For more information on steps you can take to maximize your vehicle deduction, contact a trusted tax professional, or contact me if you don’t have one. I’m here to help.