Business Management

How to Deduct 100% of Your Meal and Entertainment Expenses

Expertise: Business Management, Real Estate Investing Basics, Personal Finance, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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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 ye...
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    Aaron Mazzrillo Investor from Riverside, CA
    Replied over 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 over 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 over 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 over 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 Moneta, Va
    Replied over 2 years ago
    Thanks for putting this into perspective!
    James Dickens from New Iberia, LA
    Replied over 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 over 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 over 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 from Lakewood, WA
    Replied 9 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