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?

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!

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

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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!

About Author

Amanda Han

Amanda Han of Keystone CPA is a tax strategist who specializes in creating cutting-edge tax saving strategies for real estate investors. As real estate investors herself, Amanda has an in-depth understanding of the various aspects of investing including taxation, self-directed investing, entity structuring, and money-raising.

23 Comments

  1. Jerry W.

    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.

  2. Scott Pigman

    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…

    • 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

      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. =)

  3. 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.

  4. Bill Neves

    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.

  5. Shaun Reilly

    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.

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