Hi there. We normally talk about meals and entertainment as a group, but just a little refresher, back in 2020, during COVID, we had a chance to meals and entertainment rules and how they’re deducted. The first change was entertainment is not deductible at this time. So if you have any golf outings, sports tickets, or things like that, those are not deductible currently.
For 2021 and 2022, we also changed over to a 100% deduction for meals. Meals currently were at 50% or historically were at 50% deductible. Whether you went to McDonald’s or Mortons, it didn’t matter. However, based on COVID, they were trying to stimulate the economy to get people back in and out, back out to restaurants. So they are up to a hundred percent deductible for meals.
Now for documentation of meals, what do you need to do? Your receipt from the restaurant will hold the key to three of the elements that you’ll need where you were, what the date was, and the amount of the expenditure. The two pieces you’re missing there are who you were with and what your business purpose was for the meeting.
Now, if you were by yourself, the only way that can be a business expense is if you were over 60 miles from home, otherwise is assumed that you could have fed yourself. If you’re traveling more than 60 miles away from home, I will list on that receipt why you were out of town, what the business purpose was for your travels, and that you had that meal, but going back to a traditional meal, let’s say you’re meeting with a client meeting with a vendor and you want the deduction you’ll need to document again, the three elements from the receipt, the date where you were and the amount you’ll also document who you were with and what the business purpose was for your meeting.
So business purpose could be as simple as saying, we were discussing a new marketing strategy. We were discussing that person becoming a client and the levels of service that we could provide for them. Discussing new projects that you might work on together those types of things. Now, if you had that information in a log and the receipt for the meal was less than $75, you actually could just have a spreadsheet or a log of that information, even in your accounting system.
However, if you’ve gone out to eat recently, you’ll know $75 doesn’t buy much anymore. For a lot of people, that receipt rule is going to come back to make sure that they have to actually have the receipt and know a credit card statement does not count as the receipt or a bank statement. So we suggest using an app that will allow you to snap pictures of receipts. We use Dex, formally Receipt Bank, for that purpose or Hubdoc in our case.
There are many different apps that we can help you get set up with. But the important part is if you spend more than $75, remember you will have to have a receipt if you were audited. I’ve been through an audit where meals and entertainment were simply going through, giving them the list from the general ledger of all the meals and entertainment. And the auditor would pick out just the few that were over $75 to ask for the substantiation of the receipt.
Nowadays, two people can’t go out to eat for $75 anymore unless you’re going to McDonald’s, and even then, it’s questionable. So make sure that you’re keeping good track of all of your receipts, not just meals but keep track all of them. The newer apps that we use now make this a very simple process and streamline, and you’ll no longer have to be burdened by watching out for pieces of paper floating around the office or those thermal receipts that disappear in six months. So keep up with your receipts for meals, and have a great day.
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Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.