I was working on a client’s tax return and he had a whole lot receipts for business meals. A whole lot. I do a lot of tax returns and I’m pretty familiar with claiming meal expenses. This guy wasn’t in one of the jobs that I normally associate with lots of meal expenses – so I had to ask him about it.
He told me, “Well yeah, I own my own company and my wife helps me and so we go out to dinner together all the time and we talk about work so I write it off as a business expense.”
Here’s the problem – that’s not going to fly with the IRS. If you are just going out to dinner with your spouse, even if you do nothing but talk about business – well then, it’s not a deductible business expense.
I deal with this issue all the time. Heck, my own husband will say, “Hey we talked about business, you can deduct our dinner!” And yes, my husband often gives me excellent business advice during dinner (he’ll read this blog post so I have to say that) but I still can’t deduct having dinner with him for business purposes. (As smart as he is at business, he stinks at taxes.)
Here’s the IRS rule: “Generally you cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose for providing the entertainment.”
So, I can bring my husband, Mark, along if I’m entertaining a client who needed to bring her husband along as well. For example, someone is in from out of town and wouldn‘t want to leave her husband all alone in the hotel. But if I’m just having dinner with my husband alone – no deduction.
There are lots of other rules about claiming meals as well. You’re supposed to record the expense “contemporaneously”. That’s a fancy way of saying you should write down on the receipt who and why. For example, Helene is one of my advertising people. We both like the grand slam breakfast so I’ll meet her at Denny’s. On the receipt I would write, “Helene, advertising.” Quite frankly, Helene is the only person I meet at Denny’s so if I’ve got a Denny’s receipt, I know who I was meeting and what we were talking about. But a Bread Company receipt? Well I probably meet someone there once a week. If I don’t write that down that might not survive an audit. It’s just a good business practice to write who and what on the receipt every time.
Here’s a silly little tip that makes the IRS happy: when you’re paying for a business meal with your credit card, write the name and reason for the meeting on the slip that you sign and give to your waitress. That way, your “contemporaneous reporting requirement” is proved on your receipt carbon. Your waitress might think you’re a little weird but chances are she won’t even notice.
If you want more information about entertainment meal expenses, you can check out the IRS publication 463: http://www.irs.gov/pub/irs-pdf/p463.pdf
And now, I’m headed off to a non-deductible dinner with my husband!