Well, things have changed in 2018 when it comes to writing off meals and food expenses in your small business…and frankly that’s for any size business. Large or small, business owners have to reevaluate their budget for the food they were able to deduct in the past.
In the past, (2017 and earlier) business owners were able to deduct 100% certain food or dining items, now they are 50%.
Also, there were certain items that were deductible up to be 50% in 2017 and earlier, AND now some of those have disappeared all together. Let’s break it down into some bite size pieces (sorry I couldn’t resist).
Here’s what is now 50% (previously a 100% write-off):
There is a growing debate and sharp divide among CPAs and tax professionals that the ‘meals out with a client or prospect, or even business partner’ are NOT deductible. The argument is that when the entertainment expense was completely repealed under the Tax Cuts and Jobs Act, by default it grabbed the meals expense under it’s umbrella.
Regrettably, it appears the majority of tax professionals concur that this type of meals expense is no longer a write-off for business owners and the safe bet is to ‘track’, but not ‘deduct’ these expenses until further guidance from Congress or the IRS.
In my opinion, this is an outrageous provision in the new tax law, however I am compelled to be cautious about taking this type of deduction.
Historically, taxpayers have had some success in urging Congress to repeal certain unfavorable tax law. For example, in 1984 Congress passed some aggressive and highly controversial rules regarding the auto deduction. Within nine months, the House and Senate repealed the new law. We can only hope for the same here.
Substantiating your expenses.
In light of these more complicated rules and frankly confusion, its more critical than ever to track your expenses carefully in order to allocate and deduct them in the proper manner come next spring. Here is an article on travel and meals regarding substantiation and recording procedures.
10 Takeaways and examples:
My personal opinion is that many of these meals when taking out clients or prospects out to lunch or dinner, previously deducted for even 50%, should be an advertising expense. However, that’s just my opinion and I’m not the IRS Commissioner, nor can I vote for the majority of Congress.
Trust me, I’ll keep looking for loopholes AND keep you posted. But in the meantime I have a MAJOR recommendation. Please send an email to your Congressmen or Congresswoman. Here is how you can reach them:
Bottom line, even with these major tax-law changes, dining and or event and office food can add up to be a significant expense on your books. Keep good track of your food expenses and keep several categories in your QuickBooks. It’s not a big deal to do so and it will give you an important opportunity for a discussion at tax-prep time.
I know I’m not covering new territory here, but January is a little depressing – right? I mean, it’s cold, the holidays are over, your football team has probably already been eliminated from Super Bowl contention (ok – not you, Patriots fans), and did I mention that it’s cold?
It’s also the time those credit card bills start to show up from all that December spending. Maybe it’s time to redeem those credit card points or miles you’ve been saving up and jump on a plane headed someplace warm. How about Miami, or maybe Maui? Sounds exciting, right?!
Well, before you start clearing your calendar, think about this – redeeming those points or claiming your rewards may be a taxable event. Yes, I know it’s surprising, but the IRS looks everywhere when it comes to finding opportunities to collect revenue.
Ok, now that I’ve interrupted your daydreams of sipping a tropical drink on a beach somewhere, let’s consider several issues and strategies that can save you big time:
Some common examples of credit card rewards that do not need to be reported as income are cash-back programs, travel miles bonuses, accumulated points towards future purchases, and credit card sign-up bonuses that require a financial transaction, such as making a purchase, to be realized.
Anything you receive that isn’t tied to actual use of the card, whether it’s cash, airline miles, tangible goods, Super Bowl tickets, or anything else, is going to be considered taxable income. And because banks and credit card companies don’t like running afoul of the IRS, you can count on receiving a 1099-MISC tax form in the mail for the value of bonus. If you don’t like running afoul of the IRS, you will in turn report that income when you file your personal tax return.
Bottom line, if you are simply redeeming miles or points, you aren’t going to be taxed on the value and should be skipping to the ticket counter. However, with that being said, don’t ignore a 1099-MISC, if your credit card company or bank sends you one in the mail.
If you don’t understand why you received the 1099, call your credit card company. If it turns out to be legit, then report the income and pay the taxes. Following this procedure will help you prevent a small annoyance (potentially paying taxes on a few hundred extra dollars in income) into a much bigger problem (an omission that you have to explain later to the IRS during audit).
The NEBDG Blog, by our Tax & Legal instructor Mark J. Kohler, is "The Real Estate Investment Conversation You Can Rely On." Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the books “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com. Let us know if there is a topic you would like to discuss!