Business Management

How to Deduct 100% of Your Meal and Entertainment Expenses

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Many investors are bothered by the fact that they can’t deduct their full expenses for meals. You take your client out to lunch or buy yourself dinner when traveling, but at the end of the day you can only write off 50% of the cost. It’s a legitimate business expense, so why is it only partially deductible?

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The theory behind the rule is that you would be eating that meal whether it was business related or not, so the IRS only lets you deduct half of your meal expenses. There are, however, a few ways to get around this rule and deduct 100% of most of your meal and entertainment expenses, if you plan accordingly!

real-estate-networking

Related: 5 Tips For Maximizing Your Tax Income Deductions For NEXT Year

Free Beer

Who doesn’t love a good open house? There is always something exciting about entering into someone else’s home to see how they live and to find inspiration on how to make a house a home, and even if the house isn’t great, the food usually is. Nowadays, it is common to see people do some crazy things at open houses. From catered food to musical appearances, these open house “parties” can get expensive quickly.

We have a client named Mike, who is one of these “party” hosts. His open houses always include tons of food, tons of alcohol, and tons of people. No one wants to throw a lame open house, and Mike makes sure he doesn’t. Plus, his events bring in not only potential buyers, but also potential investors. The only downside is that he spends quite a bit of money on these exciting open houses, mostly in the food and drink department. Luckily for him, he is able to write off all of his costs.

A small loophole for meal expenses is that if the meal is provided to the general public, then 100% of it can be tax deductible. Generally, when you have an open house, you want everyone to show up. You put advertisements online and signs around town because you never know where your next buyer will come from. It could be someone driving by who saw your sign or someone visiting of the neighbors down the street.

I’m sure some of you are wondering if the alcohol is deductible too, and usually in the case of open houses, it is! In addition to the usual hors d’oeuvres and finger sandwiches, beer, wine, and other alcohol provided at an open house are also generally tax deductible.

Club Meetings

Another way to deduct a higher percentage of your meals and entertainment expenses is to own your own real estate club!

Related: 3 Reasons You Should LOVE the Home Office Tax Deduction

Tom is a client of ours who is involved in some real estate syndication deals. He meets different investors at local REIA meetings, and they meet up occasionally to discuss their ventures and to see how their business deals are going. Tom quickly realized that one of the fastest ways for him to network with investors and be seen as a trusted resource is to actually open a real estate club of his own. Instead of driving all around to attend other people’s clubs, he started a local REIA of his own. He invited speakers and quickly grew his database to a respectable size.

Tom’s real estate club is open to the general public, and the food and drinks are available to everyone who attends, so Tom is able to fully deduct the cost of his meals and entertainment expenses for the club meetings without any limitations from the IRS.

Seems easy, right? Just a few minor adjustments, and your meal expenses are fully deductible! There are, however, a few things to keep in mind when setting up your events. First, be sure to keep documentation for any expense over $75, so don’t lose those grocery receipts. Second, make sure that you can prove that your events are legitimate business functions. Hang onto your ad in the paper for your open house or a copy of the meeting agenda for your investor dinner. The IRS will need you to be able to prove that these are business expenses and not just regular parties.

So, as you can see, just one small change could be the difference between a 50% and a 100% deduction. Make sure that when meetings and open houses roll around, you’re taking advantage of loopholes so that you can deduct every penny of your “party” expenses. At the end of the day, you are trying to make a profit and grow your business, and if Uncle Sam is helping to pay for your “party,” why not spend a bit extra to ensure that you have a great one?

What do you think: Will you use techniques to deduct your meal and entertainment expenses?

Leave a comment below!

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 years with a focus on long-term hold residential and multi-family assets across multiple states. Formerly a tax advisor at the prestigious accounting firm Deloitte in the Lead Tax Group, focusing on tax strategies for the real estate industry and high net worth individuals, and at an international Fortune 500 Company in the high-tech industry in the Corporate Tax department, Amanda’s goal is to help investors with strategies designed to supercharge their wealth building. Amanda’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s best seller list. A frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies, Amanda has been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Amanda was a speaker at Talks at Google and is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine. She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

    Darren Sager Realtor from Summit, NJ
    Replied almost 5 years ago
    Great article Amanda! Please give us more!
    Ericka
    Replied almost 5 years ago
    Let the good times roll, as long as you keep the receipts just in case. Good offense and good defense. Make more income, deduct properly, and cover your bases.
    Michael Evans
    Replied almost 5 years ago
    Great article. Thanks for the advice.
    Gabriel Sosa Residential Real Estate Agent from El Paso, Texas
    Replied almost 5 years ago
    Nice! Thank you for the great information!
    Shane Willcox Professional from Santa Monica, CA
    Replied almost 5 years ago
    Great article indeed! Thanks Amanda.
    Joseph Ball Residential Real Estate Agent from Groveland, Florida
    Replied almost 5 years ago
    Isn’t this just hanging out a flag that says, “Audit Me!”? If so, no amount of deduction would justify the amount of work in an audit. In my opinion.
    Jerry W. Investor from Thermopolis, Wyoming
    Replied almost 5 years ago
    I like the way you think Amanda. I believe there is also a way if you buy meals and have them delivered to a work site so the workers can keep working and not leave to get a meal that full cost can be added to the basis of the house. I have done this several times, but my book keeper says the $100 I may save in taxes is not worth the extra work. While I am not worried about passing an audit I would prefer to not increase my chance of having to do one.
    Scott Pigman from Austin, Texas
    Replied almost 5 years ago
    I guess I’m missing why this is so great. So instead of spending $20 on my own meal and deducting half I can spend $500 to hold an open house and deduct the whole thing, and I’m coming out ahead how? Maybe I reheat the leftover hors d’oeuvres for lunch for the next week? Sure, if you’re going to hold an open house or host a REI club meeting anyways its’ great that it’s fully deductible, but it’s not like spending money on an open house just because it’s deductible is going to get you ahead. It’s like something from a comic strip, “Honey, I saved us hundreds of dollars by spending thousands on crap that was on sale!” Tell me if I’m wrong…
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thanks for your comment Scott. I agree with you in that you dont want to spend money simply to get the tax deductions…that never makes sense…unless of course if your tax rate is 100% or more…which I never the case. However, if you are holding an open house for example, it is important to make sure your bookkeeper knows to track this separately from your other business meals. This way when your CPA prepares your taxes, they will know that 100% of the open house expense is tax deductible. As far as your comment on telling your significant other that you saved a lot of money by spending it on shopping for on sale items……I must admit that I have been know to do that to my husband. =)
    Samuel
    Replied almost 5 years ago
    I do not think Amanda is asking you to hold a party so you could deduct the whole cost. I think she is providing a way of making your full claim, and not be cheated by the IRS, when you do host parties. The pieces of advice are real and reasonable; but then, I would prefer to make the 50% deduction, rather than spend what I wouldn’t have spent in the first place. When the occassion comes that I have to host a party, I wouldn’t be thinking of frugality when I would have influenced more people.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thanks for the comment Samuel! Completely agree. Dont go over board with spending, but if you work with certain types of investors you want to keep the frugality to a minimum.
    Alvaro Barraza from Stratford, Connecticut
    Replied almost 5 years ago
    Great article… Thanks for the info!
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thank you for reading Alvaro!
    Ken Denton
    Replied almost 5 years ago
    Just be sure to check your local liquor laws to make sure you don’t run afoul of the law when serving alcoholic beverages to the public, and an event liability insurance policy may also be a good idea in case someone over indulges and causes mayhem on the way home.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thank you Ken!!! Great and very important point.
    Bill Neves Flipper/Rehabber from Vancouver, WA
    Replied almost 5 years ago
    Good article. @Jerry W mentioned above, and my CPA/tax atty alerted me to, another deduction available in this arena. Catering is deductible. As well as delivered to your work site….Depending on your corporate structure, if you are traveling, and order room service, which gets delivered, it’s considered catering and 100% deductible. I got audited for 2010 and all the biz deductions, including catering, were allowed. A book called ‘Tax Wise’ by Toby Mathis, Esq. (Anderson Law Group), and others, cover over 500 biz deductions all totally legal but missed by lots of people. As always when starting any new exercise program, verify with YOUR tax person first.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thanks for sharing! I will check out that book myself =)
    Shaun Reilly Landlord and Rehabber from Newton, Massachusetts
    Replied almost 5 years ago
    Well I think that the title is a little misleading (This is where you can throw the BP editorial staff under the bus by pointing out that you don’t actually pick the title 🙂 ). This really doesn’t allow you to write off all your business meals. Pretty sure if I want to have a dinner meeting with someone that it isn’t going to work to do always do it at a finished house with it open to the public… However this is good information for people that may have thought they could still only take 50% if they happen to be in one of these situations.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Unfortunately I cant blame the BP staff for this one…it was actually my title =). Yes I see what you are saying…maybe an alternative title could be “how to deduct 100% instead of 50% of your meals”.
    Craig Pfeffer Rehabber from Louisville, Kentucky
    Replied almost 5 years ago
    Learned something tax-wise that I wasn’t aware of. Thank you for sharing Amanda.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    Thank you for reading Craig!
    Amanda Han Accountant from Fullerton, CA
    Replied almost 5 years ago
    thanks for reading Lissa!
    Aaron Mazzrillo Investor from Riverside, California
    Replied almost 4 years ago
    So, what I really think you’re saying is I should hold an open house at my home every afternoon at 12pm and an evening REIA every night at 6pm.
    John Murray from Portland, Oregon
    Replied about 2 years ago
    That is the most ridiculous strategy I have ever heard of. Free drinks and a meal is pretty much on the scale of please look further into my jaded past. Being honest is a virtue, being worldly is wise.
    Jonathan Godes Lender/Investor from Glenwood Springs, CO
    Replied about 2 years ago
    Amanada – can I buy meals while traveling as an employee of my LLC and get full reimbursement from the company? Alternatively, can I take the employee per-diem rate and be reimbursed from my company?
    Jonathan Godes Lender/Investor from Glenwood Springs, CO
    Replied about 2 years ago
    Can I buy meals while traveling as an employee of my LLC and get full reimbursement from the company? Alternatively, can I take the employee per-diem rate and be reimbursed from my company?
    Gregg Hutton Investor from Centreville, VA
    Replied about 2 years ago
    Thanks for putting this into perspective!
    James Dickens from New Iberia, LA
    Replied about 2 years ago
    Amanda, Great post and thanks for providing value and education. Quick question, does it help to provide a list of names with the expense to help stave off audits or at least have great backup information in case of one. I think that this would make both REI meeting signup sheets and Open House visitor books an important part of your documentation for this strategy? Not only do they provide great followup information but they are signed proof of attendance to the function to document against this expense.
    Gerald Jordan from Columbia, Maryland
    Replied about 2 years ago
    Thank you for writing this as I have been away from BP due to working hours but have returned in order to prepare for my first purchase of a multi-family property. I’ve been studying for the past year and putting things in place so this is a good primer for me.
    Jim Baer Investor from Menifee, California
    Replied almost 2 years ago
    Hi Amanda! What about attending conferences, syndication mentoring events and membership costs? I have properties which are reported on schedule E, but I have no schedule C income.
    Charito Mattson
    Replied 2 months ago
    Ms. Han, do you have a colleague in Seattle area that we can go to? We are just starting our real estate business and would like to have a real good COA like you. Thank you in advznce