Tax Planning Strategy: Business Meal Deduction*

Explore bountiful tax savings with tax planning using the strategy of the business meal deduction.

 

*26 U.S. Code § 162 - Trade or business expenses...ordinary and necessary, https://www.law.cornell.edu/uscode/text/26/162

 

About this page:

If you want to stop paying high taxes for you, your family, or your business, learn about the business meal deduction as a tax planning strategy, is a great way to get started!

"For all taxpayers, we want you to know
about the business meal deduction
that any sole proprietor to large business can use
to offset the cost of
carrying on a business and winning clients."
~ JLW, owner/manager, Lentax.co

Read on to learn about the business meal deduction available to eligible businesses.

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Tax Planning & The Business Meal Deduction

 
Tax planning is a way to plan for any life or business changes that may affect your taxes and by using a combination tax strategies saves you money by making tax law work for you. Tax planning includes using tax exclusions, deductions, deferrals, tax rates, and credits in the right formula to keep more earnings in your pocket.
 
The business meal deduction (BMD, for short1) is a deduction eligible businesses can use for this purpose.

Special deduction for businesses large and small.

BMD can be used for the cost of the food, beverages, tips, and more!

 
 
1 Our acronym BMD stands for business meal deduction. Using this deduction if you properly comply with the rules, can save you hundreds in additional taxes.
 
The regulation(s) related to this deduction is/are as follows: 26 U.S. Code § 162 - Trade or business expenses. In general, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business.
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How Can I Use BMD As A Strategy?

 

Step 1

Determine eligibility

Am I an eligible taxpayer?2

Do my expenses qualify?

Step 2

Create a tax plan

If I cannot avoid penalties, do I have enough cash flow to pay them when they become due?

Do I have a tax plan that includes a combination of tax strategies I can use to mitigate the penalties, if I owe?

Step 3

Keep adequate records

Am I eligible and do I have all the necessary records for substantiation, if I file for penalty abatement?

Are my records easily retrievable in case I am required to provide substantiation, in case of an audit3?

Step 4

Take the tax benefit

Am I able to accurately complete all the necessary tax forms to receive this benefit?

Am I filing all the necessary tax forms in a timely manner to receive this benefit?

 
2 For married filing separate filers, expenses should be included separately on each return as they relate to each spouse's business ownership. The same applies to members of S corporations and partners in a partnership, the expenses are included in the partnership and S corporation returns and carried forward on the individual members/partners' return.
 
 
3 About IRS audits, if you get audited, it does not always suggest there’s a problem. The IRS uses several different audit selection methods: 1) Random selection and computer screening. This is where returns are selected based solely on a statistical formula. The IRS compares your tax return against what they call “norms” of similar returns. They develop these “norms” from audits of statistically valid random samples of returns, as part of their National Research Program. The IRS uses this program to update return selection information and, 2) Related examinations of returns may be selected when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit. Next, an experienced auditor is assigned the return for review. They may accept it, or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examination group. To learn more about IRS audits, visit https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits.
 
Find out how we protect you against an audit for any tax form we prepare for you, visit www.lentax.co/taxprep#Protection-Plus.
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How Can I Use BMD As A Strategy?

(Step-by-Step)

 
Step 1
Determine eligibility

First, determine if you are one of the following eligible taxpayers that can use the TIM deduction.

 
Will you file as:
A corporation?
A partnership?3
An S corporation?3
A sole proprietorship?

Then, determine if your expenses qualify for the deduction.

Expenses qualify if all of the following conditions are met:

1. The business owner or an employee of the business must be present when food or beverages are provided.
2. Meals must be from restaurants4
3. The cost of the meal can include taxes and tips.
 
Employers may not treat certain employer-operated eating facilities as restaurants, even if they operate under contract by a third party. The cost of transportation to and from the meal isn’t part of the cost of a business meal.

 

 

About Meals & Entertainment Events

Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event, if the food and beverages costs are separate from the entertainment costs on any bills, invoices, or receipts. 

 

 

Latest Development

For 2021 and 2022, the business meal deduction has been enhanced5.

For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant where the usual limit is 50% of the cost of the meal. Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.

 

 

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Step 2
Create a tax plan

Second, create a tax plan with tax strategies that uses the BMD deduction and other strategies that align with your particular facts and circumstances to minimize, defer, or eliminate business taxes in the current year, prior year, or future year.

We suggest hiring a tax consultant, like ourselves, to create a personalized tax plan for you.

 

 
Step 3
Keep adequate records

Third, implement the tax plan6 by keeping adequate records. Implementation could mean purchasing recordkeeping software & bookkeeping support,  purchasing equipment, or investing in a specific business enterprise to implement the strategies in the tax plan.

A thorough review of your cash flow and your best estimate of future earnings are critical to realizing the tax savings in the tax plan. In addition, keeping adequate and reliable records plays a critical role for supporting documentation.  

 

 

Tax Benefits Lentax.co
Step 4
Take the tax benefit

Finally, take the tax benefit by filing, timely and accurately, all the necessary tax forms and worksheets to receive the benefit. This could mean filing amended returns to adjust amounts in returns filed in prior tax years, for example, when carryforward/carryback provisions are allowed. 

 
4The term restaurants includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption. Food and beverages costs are on a separate receipt from the entertainment costs If food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts. Businesses should review the special recordkeeping rules that apply to business meals. The expense cannot be lavish or extravagant. Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. For more information, Publication 463 Travel, Gift, and Car Expenses.
 
5 IR-2021-225, November 16, 2021 IRS provides guidance on per diem rates and the temporary 100% deduction for food or beverages from restaurants: The Internal Revenue Service announced the issuance of Notice 2021-63 to make clear how the temporary 100% business deduction for food or beverages from restaurants applies to taxpayers properly applying the rules of Revenue Procedure 2019-48 for using per diem rates. Previously, the IRS issued Notice 2021-25 providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020, which added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants, as long as the expense is paid or incurred in 2021 or 2022. For a taxpayer properly applying the rules of Revenue Procedure 2019-48, Notice 2021-63 provides a special rule that allows the taxpayer to treat the full meal portion of a per diem rate or allowance as being attributable to food or beverages from a restaurant beginning January 1, 2021, through December 31, 2022. Taxpayers should refer to section 6.05 of Revenue Procedure 2019-48 to determine the meal portion of a per diem rate or allowance paid or incurred. This provision was part of the COVID-related relief efforts of the government. See also IR-2022-100, May 3, 2022 For National Small Business Week, plan now to take advantage of tax benefits for 2022; enhanced deduction for business meals, home office deduction and more. 
 
6 To fully realize the tax savings in any tax plan we create, we provide implementation assistance including matching you to quality investment companies, vendors, and financers,
as well as, by filing the necessary form(s) with your timely filed tax return, including extensions, for the tax year that the tax benefit will be most effective.

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"Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes"

 

---Billings Learned Hand (1872 - 1961), American Jurist, Lawyer, and Judicial Philosopher, US Federal Trial Judge, Southern District of New York, Appellate Judge of US Court of Appeals ---

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