How Home Business Owners can Maximize the Meals Deduction
The information shared here is for presentation purposes only. Please consult your tax professional regarding your specific tax situation.
With this post, I’m going to share with you how to max out your meals deduction and why you should never eat alone. The primary goal here is to increase business, not just get tax deductions. This post is not written for you to go broke trying to get tax deductions. This post is designed to show you how to get the maximum benefit while growing your business. With that being said, let’s get started!
In his book Influence, Robert Cialdini talks about the Law of Reciprocity. To summarize, he states that when you give someone something, they feel a sense of obligation to give you something – their time, their email address, etc.
Meals have always been a staple in the sales profession. If you’re a home business owner, you are in the sales profession. You take your client or prospective client out for a meal or drinks, and in return they allow you to share your products or services with them.
The IRS allows business owners to deduct 50%, or in some cases 100%, of the meals. How would you like to know how to get the most out of this meals deduction?
To get the most out of your meals deduction you must plan and provide documentation.
If you know you’re going to go out to lunch, why not invite someone – who could be a client or potential client – to go with you? Let them know you’d like to discuss your business topic – new product, biz opportunity, updates on the industry.
Example: You’re a travel agent and Sue is a great client of yours!
Here’s how the call might go:
You: Hi Sue! Are you free for lunch on Tuesday?
You: Great! I’d love to show you the most recent cruise packages. Let’s meet at Bertucci’s at noon?
In order for you to legally take the meals deduction, the meeting has to be planned in advance. You do not have to discuss business the ENTIRE time, but you must discuss business. You don’t even have to pay for Sue’s meal in order to deduct your own.
To document the lunch meeting, your receipt will have some of the information – Where, what, when, and how much. You must document
•Who: Sue Collins,
•Why: Review cruise packages
If the total is less than $75, you don’t have to keep a receipt. I don’t recommend not having documentation; however, that’s what the current rules are.
You also do not have to prove you made a sale. You must have had an expectation of a sale. Sue may make her buying decision after she talks to her spouse.
You also get the benefit of deducting the mileage to and from the lunch location as well. #Score
Dinner is the same thing. Even if you have dinner at home and invite guests, you go through the same process.
Example: You’re an ecommerce professional who wants to demonstrate the ecommerce process to Tara with the intent of having her buy your ecommerce training product.
You might invite Tara and her husband Mike over dinner Friday night. You demonstrate how to sell products on Shopify and how your product reduces the learning curve, and then have dinner. You get to deduct 50% of the cost of dinner.
Make sure you have receipts that show how much you paid for food. If you use products you already have on hand, you can estimate those costs.
Have a customer appreciation Event
We’re going into the summer season, and there’s about to be barbecues galore!
Instead of having a Memorial Day cookout, you might have a customer appreciation day at your home.
Have your products on display – samples of products, brochures, take pictures of people trying your stuff. This is considered advertising, so the food is now 100% deductible.
Let’s assume you have a local network marketing team, and you want train them up on new products coming out. For training events, the food is 50% deductible.
3 Notes of Caution:
- Planning is important. You can’t go to lunch alone and talk to random people in the restaurant and expect to deduct the meal as a business expense.
- Don’t get greedy trying to deduct all three meals per day. The IRS is not that stupid. My intent is for you to maximize deductions while building your business, not try and milk the IRS!
- Don’t go to overly expensive restaurants. The IRS looks at the cost of a meal compared to the average selling price of your product. It makes no sense to spend $400 on a meals to sell a $75 product.
With that, you can see now why it’s beneficial to never eat alone!
If you want to know how you can maximize more of your deductions, you can start by grabbing my Top 5 Frequently Overlooked Tax Deductions for Home Business Owners.