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Employee Meals: 50 or 100 Percent Deductible?

Everyone loves a free meal – especially employees. However, your business tax return will be affected differently depending on the circumstances of the mealtime experience.

While you can generally deduct only half the cost of meals related to your business activities, the tax code includes specific exceptions that allow a deduction of 100 percent of what you spend on food and beverages in certain situations. Here are three examples:

  • Social gatherings and parties. That once-a-year holiday party qualifies for 100 percent deductibility as long as it is primarily for the benefit of all your employees.
  • Food with nominal cost. Do you supply morning-meeting donuts, meals for overtime work or special occasion treats for your staff? “De minimis” employee benefits — those small items your business pays for that are not considered taxable income to your employees— are typically 100 percent deductible.
  • Employees on emergency calls. If you provide food for your employees during working hours so they can be available for emergency calls, the meals will likely be able to be deducted 100 percent.

Remember that you’ll still need to keep detailed records to substantiate your deductions for meals and food served under these exceptions.

Do You Live or Work in Kansas?

If so, the recent changes WILL AFFECT YOU!

WHAT YOU NEED TO KNOW:

  • These changes are retroactive and apply starting January 1, 2017.
  • Business and rental income (Sole Proprietors, S Corporation and Partnership owners) which was previously exempt from Kansas tax is once again taxable.
  • Increase in tax rates for 2017.  The highest rate will be 5.2% for those with Kansas income in excess of $60,000.  These rates will increase again in 2018 to a high of 5.7%.
  • No taxpayer penalties or interest will be charged for underpayment of taxes due to this change in law as long as the underpayment is paid by April 17, 2018.
  • Limitations on itemized deductions will ease but not in 2017.  Starting in 2018 a portion of medical expense will be allowed and mortgage interest and property tax deductions will phase back in.
  • For W-2 employees, Kansas withholding tax rates were updated on July 1, 2017.  These rates have been updated for the remainder of 2017 at the higher 2018 rates to compensate for the first 6 months of withholding at lower rates.   However, some employees may still not have enough tax withheld for the year.

WHAT STEPS TO TAKE:

  • Consider making higher KS estimated tax payments to avoid a large Kansas tax bill at April 17, 2018.
  • Consider having extra Kansas tax withheld from your paycheck.
  • Contact us to prepare a projection of the Kansas tax you may owe for 2017.

Please contact us if you have any questions or concerns about these changes!