In the past, employers that chose to cover the meals of their employees who were traveling on business could only deduct a maximum of fifty percent of these expenses through income. However, a new ruling has changed this, giving employers the ability to deduct the complete amount for meal costs. Below are additional details regarding this rule and what it means for employers.
How The Ruling Came About
The American Tax Court ruled that the NHL Boston Bruins owner would be able to deduct the complete amount that was paid for meals for staff members and players during their away games. The court also concluded that the meals for the Boston Bruins fell under the exception of the 50 percent deduction for meal expenses which is listed under the 274 tax code section.
In order for an employer to qualify, they must show that the food was given in a place that is near the business premises of the employer and were distributed before, during or after the workday. The court also pointed out that the NHL requires their teams to play 50 percent of their games outside their hometown and that it is mandatory for players to attend the pregame breakfast. In fact, players can actually be fined and prevented from participating in a game if they’re absent or even late.
Past Court Decisions
In the past court decisions gave employers within the entertainment business the ability to claim deductions for meals. The U.S. Ninth Circuit Court of Appeals in 1999 made a ruling that an owner of a casino in Las Vegas could completely deduct the meal expenses for their employees. The reason for this is due to the costs, which were considered to be in association with an important business purpose which maintained employees on the premises.
However, this has opened a door to whether small businesses in other industries can also claim these deductions. Many of these businesses find it challenging to determine the meal deductions since the meals may not be directly involved with the work schedules of the employees, as compared to traveling athletes or performers, who will do business in a company form.
Records Are Necessary
When costs for food are deducted, you need records to support your claims. Officially, no deduction is possible unless these records are present, but there are some exceptions to the rule. The IRS carefully reviews deductions for food costs since it has a high likelihood of abuse, and if a return is scrutinized, you will be asked to show records. These records must show where, why and when the meal was consumed. You must also provide receipts for the expenses, with the only exception being not having to keep receipts for meals that cost under $75. There are a number of apps that can make it easier to maintain good records, which allow you to input the location, time and date.