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Are meals with employees deductible?


Most people know that for tax purposes, 50% of the expense is deductible for qualified meal and entertainment expenses. Only those meal and entertainment expenses under IRS guidelines are deductible and when audited, business needs to show receipts, as well as a memo showing with who, and the purpose (discussion at the meeting) of the meal and entertainment expenses.
We are often asked about how are meals with own employees and parties? It is not too well known, but certain meal and entertainment expenses that meets certain criteria are 100% deductible.
I would like to summarize the criteria as below.

Criteria 1: De minimus
Small items such as doughnuts, coffee, and soft drinks are deductible under this criteria.

Criteria 2: Overtime meals
Providing meals for those that needs to work overtime matches this criteria. (Actual Dinner money provided does not match this criteria)

Criteria 2:  Company events
Christmas parties, company picnics, retirement, anniversary, award dinners are in this category.

Criteria 4: For the convenience of employer
Pizzas and Sandwiches provided by the company for lunch meeting should qualify for this category.

For the above criteria 2 – 4, documentation should be kept as to the participants (if not for all employees) and the purpose. Especially if company meals become frequent, good documentation is essential for the expenditures to be deductible.
Meals provided to improve general morale or goodwill, or to attract prospective employees,  are not provided for a substantial noncompensatory reason and are taxable. Also, if the owner is always involved in the meal, IRS may determine that the expenditures are for owner’s benefit. Careful consideration as to the deductibility of expenditures per “ordinary and necessary” criteria of deductibility is needed.

  • There are special rules for meals provided to restaurant employees and hospitals. Part of the meals provided may need to be treated as taxable income to the employees.

 

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