Are You Missing Out on M&E Deductions?

Are you missing out on some Meals and Entertainment (M&E) deductions?

Most taxpayers know that only fifty percent (50%) of most meal and entertainment expenses are tax deductible.  Routinely, return preparers see all such expenses “lumped together” and apply the 50% limit without a second thought.  However, several situations exist where all (or a greater portion than 50%) of such expenses are tax deductible.  To find this benefit you must understand those exceptions.

Exceptions?  What exceptions?

While the breadth of the 50% rule is quite pervasive, several meaningful exceptions exist; such as:

  • Meal and/or entertainment includable in a nonemployee’s income where included in form 1099:
  • Meal and/or entertainment attendant with company picnics and holiday parties as respects employees but not independent contractors;
  • Expenses for items made available to the general public (e.g. promotional popcorn, snacks) so long as it isn’t a “by invitation only setting”;
  • Meals and entertainment sold for adequate compensation (e.g. company cafeterias, restaurants and daycare providers);
  • De minimis amounts (unreasonable or impractical to account);
  • Charitable sporting events where—(a) benefiting a “public charity”, (b) 100% of net proceeds are contributed to the charity, and (c) substantially all the event’s workers are volunteers; and
  • Meal expenses during a job-related move which are reimbursed and reported as income to such employee.

Sometimes the 50% exclusion can be shifted to the employee/independent contractor:

Meal and entertainment expenses paid to employee under a non-accountable plan which is treated as compensation shifts the 50% exclusion to that employee.

The “take-away”

What can be gleamed from the above?  You must be aware of the above exceptions and track them so your tax preparer can separate the above expenses from general, meal/entertainment expenses.  If you engage in any of the listed exceptions or think you might move in that direction, please call your H&M contact to help maximize the tax deductible nature on your meal and entertainment expenses.