We could think that lunch we take every day during labor hours or miles spent to go to work can be taken as an expense of our business or self-employed income. But the IRS has specific guidelines on what can be an expense in our tax returns. This is established in Publication 463, which is reviewed by the IRS on an annual basis.
Meals that are consumed when we are traveling for business purposes are 50% deductible or if it has any business purpose. These should be ordinary and necessary and not extravagant. Also, adequate for the business industry we are in. If we are out of town for business, we can take 100% of the transportation expense and 50% of the meals.
For transportation expense purposes we can deduct the actual gas, maintenance, and other related expenses if we keep good accounting records. The other alternative is keeping the mileage records used for business purposes and multiply it by the standard mileage rate set by the IRS for each year. For 2021 this rate is .56 for each mile spent. Mileage spent from home to your usual place of business is never deductible.
In cases that meals are for business purposes and an individual representing the business is present, 50% can be deductible. Nevertheless, during 2021, because of the COVID-19 impact to the restaurants industry and to help them improve their income there was new legislation issued. This new tax law allows business owners or self-employed individuals to take a 100% deduction on their 2021 and 2022 tax returns for business meals expenses.
In both cases, if there are meals while traveling for business or meals with clients or consultants, we should keep receipts for a period of three (3) years. Also keep a record of the name of client or consultant and business purpose of the meal. It is recommendable to have a specific credit card for this kind of expense.
Also, it is important to add that the entertainment expense that was allowed previously it is no longer available, after the Tax Cuts and Jobs Act of 2017.
If you have received any letter from the IRS indicating that you are going to be audited because of any of these expenses taken on your business or self-employed expenses, contact J David Tax Law today for a no-cost, no-obligation consultation, and immediate representation.
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