Posts

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.

Accountable Plans Are a Win-Win Business Idea

Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Consider an accountable plan. These arrangements let you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or office supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return, yet the payments are not considered income to your employees.

How can you make sure your plan qualifies? Here are three requirements.

  • The reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.
  • Your employees need to keep records of the expenses, and provide those records to you.
  • If you pay or advance your employees more than the actual amounts spent on business items, the excess must be returned to you. Amounts not returned are income to your employee, and are subject to payroll taxes.

Contact us to discuss your policies for repaying employees’ business expenses. We’ll help you make your plan accountable.