Mastering Business Meal Deductions: A Guide for Painters

While we strive to provide accurate and up-to-date financial and tax information , nothing you hear on this podcast should be considered as financial advice specifically for you or your business . We're here to share general knowledge and experiences , not to replace the tailored advice you get from a professional financial advisor or tax consultant .

We strongly recommend you seeking individualized advice before making any significant financial decision .

There's a lot of rules around it and a lot of misunderstanding . So I thought maybe we could talk about some examples what you can deduct , what would not be deductible , and maybe give a little bit of guidance as to how you might be able to structure things to be a little bit more tax advantage when it comes to lunchtime .

Well , the entertainment portion has been completely removed from the tax code by the Tax Cuts and Jobs Act of 2017 . So , no more baseball tickets , no more football tickets , concert tickets , rounds of golf all of that is zero deductible Deductibility . Zero deductibility Still fun , but not tax deductible . However , the meals portion does remain .

So if you are going out to some kind of entertainment venue and you can get a separate statement of what part of the ticket was for entertainment and what part of the ticket was for dinner , you could deduct the dinner part , but not the entertainment part .

This more likely comes up in a situation where , like , let's say , you buy the Skybox at the NFL game and they give if you can get them to give you a separately stated bill where X amount was for tickets to the game and X amount was for the buffet , then the part for the buffet because it is a meal that could be tax deductible , but you have to have it

separated and if you can't get a separate statement , the IRS is going to disallow the deduction on your audit . So the meal part is tax deductible . But even that has been restricted , where most business meals are tax deductible only at 50% . And you might be thinking , wait a second . I know I filed my taxes last year . I took a hundred percent deduction .

That was last year and that was in 2021 . We had a little bit of a special circumstance . We were coming out of COVID . Congress wanted to encourage people to eat out more , so they made restaurant meals a 100% deductible for 2021 and 2022 . Now we're in 2023 , and that special provision has ended . We are back to the standard of only 50% deductible .

So what kind of meals can be deducted ? Well , that is covered by section 274 of the Internal Revenue Code and the wording there is that the food and beverage must be provided to a current or potential business , customer , client , consultant or similar business contact . So , like most great legislation , it is vague and open to interpretation .

So I'm thinking we could maybe talk about some examples as what does count as a business meal and then talk about some examples of what does not count as a business meal .

So , yeah , one of the biggest things here is if you are a business owner and you are taking out , say , a current customer to lunch , you've maybe done three or four projects for this customer and you're trying to build a relationship with the hope of getting future work , that is absolutely a business meal , because you are expecting to get some kind of business

benefit from taking them out . So that would be something that is definitely deductible . Another great example is a work meal with a colleague so another painting business owner where you discuss best practices , challenges that you're facing in your industry , kind of encouraging each other , learning and building off of each other's experiences .

That's gonna give you a business benefit . That's a deductible meal .

So if you're at a work site , it's a hot summer day , you've got this big exterior job going on and you wanna make sure that nobody's getting dehydrated , so you buy Gatorade and bottled water for the crew . That is a business meal that's deductible .

Same thing if it's a cold winter day and you buy coffee and donuts for the crew or whatever they like to eat . Maybe it's beef , jerky and Dr Pepper , but whatever makes them happy and keeps them focused on the task . That can be a business meal for sure . Couple other examples oh , we could be networking . So networking is kind of a broad thing .

Maybe it's not another painting business owner , but it's somebody who could help you with your advertising , or maybe it's your lawyer , or maybe it's a business coach . You're building your business network , creating those relationships , and you're getting a business benefit from that . Obviously , you're talking business during this meal . That could also be a write-off .

Now we do want to keep records , so we always want to have some kind of source document in case if we ever get examined by the IRS . So you're going to want to keep a receipt , especially if the meal is over $75 . You have to keep a receipt . It's under $75 . There's some wiggle room there .

But best practice , go ahead and keep that receipt and maybe jot down on the face of it what you discussed or what the purpose of it is or what the purpose of the meal was . So you're taking your customer out . You might jot down discussed Smith painting project . Or you're going out with your business coach . Brainstorm session with business coach .

Just something to substantiate the purpose of that meal .

Those are the ones that the IRS are going to request . If you especially have a lot of meal purchases , they're going to request those and not just the receipts themselves . But , like you said , like actually having a reason why you deducted it .

And the easiest way that some of the help folks out with is get them set up on some receipt management software where they can basically have an app on their phone .

They go out to eat with a referral partner or take their employees out or take out a client , whatever it is , and then they just write on the face of the receipt and then they snap a picture of that receipt and that goes into the cloud storage and they're good to go . That's one option .

Obviously , you could also just keep like a hard copy of it too , but if you're like me and I don't like to have any kind of paper , I like to just keep it in the cloud . You can just use some sort of receipt management software .

And I think there's something satisfying about dropping a shoebox full of receipts in front of an IRS auditor or sending him a PDF that's 100 pages long of receipts . So we talked a lot about what a good business meal would look like . Maybe we could talk a little bit about what wouldn't qualify as a business meal .

So they'll have just a ton of really just personal purchases and it's just meals for themselves going out . And I have to explain quite frequently that that is not a deductible expense . You can't just use your business account as like your own kind of piggy bank and just buy food for yourself and think it's deductible .

Now there is an exception if you're traveling . So if you are traveling for business and that is defined as being more than 100 miles away from your tax home , then the meals you eat on the road for business could be 50% deductible , even if you're alone . But generally speaking they would not be .

50% deductible .

Something else that would not count as a business meal is snacking while working . So you may be putting in a marathon session in your office and you say I'm getting so much work done , I am being overproductive , I do not want to stop for lunch . I'll have takeout brought in . That's great , I love the work ethic .

Unfortunately , the takeout is not going to be tax deductible . You have the option of leaving and going and having a lunch break . Because that option is available to you , even if it's not the most productive use of time . That meal is probably not going to be tax deductible .

Now , if you're in a very special situation where your job requires you to eat on the job , then that might be a different situation . So that might look like a security guard .

This is a little bit off topic , but I would say if what you're eating is directly related to your professional eating career so your training this is not lunch , this is training then those hot dogs would probably be tax deductible , but having a hot dog for a normal lunch , even though you're a professional eater , that would not be .

But this kind of goes towards something we see a lot to , where people say I'm a content creator and I have a brand and so I have to drive or Mercedes and I have to wear a Rolex for my brand . Or my job is to create YouTube videos where I test out new Apple products , or I go on luxurious vacations .

I'm going to write everything off , and the IRS has been very wise to these types of schemes for a while and they will allow you to write off the portion of these things that is directly related to the production of income .

So if you test Apple products for a living and you buy an iPad , you film yourself testing it and then you get rid of that iPad and never use it for personal use , then yes , that could be a tax deduction . But the minute you use it for yourself or you drive that Mercedes for personal use or wear that Rolex off camera , then it becomes a personal item .

So those types of things would not be tax deductible . That's kind of some bad social media tax advice that we see a lot and I thought I'd just go ahead and address that . It really has to be directly related to business . So someone who's a professional eater wanting to write off every meal , that's not gonna fly .

You'd have to link that to a direct production of income , trushing my dreams Richard . Yeah , see , that's what accountants do . We suck all the fun out of everything . That's why I love accounting , because it makes people cry . All right , so let's say you're a . Okay , let's give an example of where this might work .

You are a security guard and you cannot leave your post . If you leave your post for five minutes , your job would be in jeopardy . You would not succeed as a security guard . So you are required to eat your meals at your post . That could be tax deductible . Maybe a soldier who cannot walk away from his post ?

Of course , soldiers probably don't need to worry about deducting meals , but you can't get the idea Like it has to be a requirement for the job . Another one that I have heard is I work from home , so I am going to stock my home office with groceries , my home office being my personal refrigerator in my kitchen .

Yeah , that's not gonna fly For all the reasons that we mentioned before . Yes , it is true that the business owner has to eat in order to produce income , but that one has been ruled on before . That's not gonna work . Another thing that might not work out too well is lavish or excessive work meals .

So it's one thing to treat the office to a fancy steak and lobster dinner around the holidays to show employee appreciation that one might actually be 100% deductible because it's a special employee appreciation event . It is not reasonable to have steak and lobster brought into the office every night . That one's probably not gonna fly .

Would a reasonable person consider this to be an ordinary and necessary business expense ? Coffee and donuts for the team meeting ? That seems totally reasonable . Steak and lobster for yourself every night ? We know that's not gonna fly right , and so you know there is a lot of gray area here .

You are ultimately responsible for the decisions you make , but we wanna try and give you some guidance so that if you ever do get a dreaded examination by the IRS , you're not caught flat-footed . You know what it can be deducted , how to substantiate those deductions , and you also know what you can't get away with . So I don't know .

All this talk has made me kind of hungry . That steak and lobster sounds good .

Where should our listeners go if they have ?

And if you'd like to send Daniel some steak and lobster ? No , no , I'm just kidding , we won't post any addresses , but anyway , I appreciate everybody listening . This one got a little off track , but I appreciate everyone sticking with us . Enjoy the rest of football season , everyone .

I hope your home team does well , unless they're playing the Dolphins , and then I hope , differently All right , we'll talk to you next week .