Tax Filing To-Dos & Turning Meals Into Deals

October 22, 2024 Kendall Rife

Believe or not, October is a very busy tax month and it tends to sneak up on us! Don’t worry, it happens to the best of us. Here are some to-dos to help you organize this month:

File your extended individual tax return (Form 1040)! This was due 10/15, so if you haven’t filed it yet, you are unfortunately a late filer and there could be a penalty.
Meet with your accountant or tax preparer regarding any year-end tax planning.
Plan any year-end charitable contributions.
Employers need to file their 3rd quarter 941s.
If you have a business and use contractors, make sure you have signed W-9s from all of them to make 1099 filing streamlined.

What happens if you just don’t file? Well, there could be a failure-to-file penalty. If you haven’t filed your tax return by the due date, you may be subject to this penalty. Per the IRS, this penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late for up to a maximum of 25% of your unpaid taxes.Keep in mind, the IRS also charges interest on penalties.

Okay, let’s move on to the more *fun* tax talk now: writing off business meals!

We probably get a question about meal deductions every single day. This next section covers a few of the most common, like: Can I write off my morning coffee? Do I need to keep receipts for my business meals? Wait, are meals only 50% deductible or 100% deductible?

When it comes to business deductions, the FIRST question you need to ask yourself is: Is this an ordinary and necessary expense for conducting my business?

But when it comes to business meals, there are a few more facts and circumstances needed to determine whether any deduction is appropriate. Do you vaguely remember being able to take a 100% deduction for your meals in the past? You’re not going crazy! There was a temporary 100% deduction for meals from a restaurant after December 31, 2020, and before January 1, 2023, from the Tax Cuts and Jobs Act (TCJA).

Since this 100% deduction has expired, the meal deduction rules have reverted back to previous guidance. Here’s what you need to know in today’s tax world: A lot of business meal expenses are back to being only 50% deductible. You can generally deduct 50% of a meal if it meets the following criteria:

The expense is an ordinary and necessary part of conducting your trade or business
The expense is not lavish or extravagant
Your business has a presence at the meal (either through you or your employee)
The meal has a clear business purpose
There is proper substantiation (documentation) of the meal

For any business meal, you should document the date and time, who attended, the business purpose of the meal, and the total cost, including tip, of the meal. The easiest way to do this is to keep the receipt from the meal and make a note on it regarding who attended and the business purpose.

Some exceptions where your meal might be 100% deductible are:

Meal expenses that are treated as compensation to an employee
Meal expenses from social activities for employees (like a holiday party or summer BBQ)
Meals provided to the general public as a means of advertising
Your trade/business is selling meals to the public (like a restaurant or food truck)

What about tips and taxes? Taxes and tips should be included in the deductible amount for qualifying business meals.

What is lavish and extravagant? The IRS has not defined an exact dollar amount for lavish and extravagant expenses and has stated that meal expenses won’t be disallowed just because they’ve taken place at a luxury hotel or restaurant. All facts and circumstances should be considered to determine whether the meal expense is reasonable.

Does your coffee in the morning count? Are you meeting with a potential client, existing client, vendor, or employee to discuss business? If not, are you traveling for business away from your tax home? If your answer is no to both of these, your morning coffee probably does not qualify as a business meal. Confirm with your tax accountant for your specific situation!

We hope these October tax tips are helpful in closing out your tax to-dos for 2023 and finishing up tax planning for 2024. If you need help getting your books caught up for the year, we would love to hear from you!