Generally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:

• For food and beverages furnished at the workplace primarily for employees.

• Treated as employee compensation.

• That are excludable from employees’ income as de minimis fringe benefits such as coffee provided by the employer at the office.  For the value of the provided meals to be considered de minimis, it must be unreasonable or administratively impracticable for the taxpayer to account for the value of the fringe benefit.

• For recreational or social activities for employees other than cerain highly compensated employees, such as holiday parties.

• For items made available to the general public (e.g., promotional popcorn, snacks at a car dealership, or in-house “comps” provided by a casino).  This exception also applies to meals provided to potential customers as part of a sales presentation.  It does not, however, apply when the meals and entertainment are provided on an invitation-only basis and not otherwise available to the general public.

• For tickets to fund-raising charitable sporting events if (a) the event is organized for the purpose of benefiting a Section 501(c)(3) organization, (b) 100% of the net proceeds are contributed to the organization, and (c) volunteers are used for substantially all the work in staging the event (e.g., golf tournament to benefit a charity).

• Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.  The expenses must be charged directly to contracts and billed separately.

If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible. For more information on how to take advantage of the 100% deduction, please contact us at tgcinfo@tgccpa.com or 703.385.8888.

© 2015

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