Page 105 - Small Business Taxes

16:31 - 2-Feb-2023
Page 46 of 57
Fileid: … tions/p535/2022/a/xml/cycle01/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Allowance more than the federal rate. If Meal expenses when subject to “hours of 2. Expenses for meals or entertainment if:
your employee's allowance is more than the ap- service” limits. You can deduct 80% of the a. A recipient of the meals or entertain-
propriate federal rate, you must report the al- cost of reimbursed meals your employees con- ment who isn’t your employee has to
lowance as two separate items. sume while away from their tax home on busi- include the expenses in gross income
Include the allowance amount up to the fed- ness during, or incident to, any period subject to as compensation for services or as a
eral rate in box 12 (code L) of the employee's the Department of Transportation's “hours of prize or award; and
Form W-2. Deduct it as travel expenses (ex- service” limits.
plained above). This part of the allowance is See Pub. 463 for a detailed discussion of in- b. You include that amount on a Form
treated as reimbursed under an accountable dividuals subject to the Department of Trans- 1099-MISC issued to the recipient, if a
plan. portation's “hours of service” limits. Form 1099-MISC is required.
Include the amount that is more than the
federal rate in box 1 (and in boxes 3 and 5 if De minimis (minimal) fringe benefit. P.L. Sales of meals or entertainment. You can
they apply) of the employee's Form W-2. De- 115-97, Tax Cuts and Jobs Act, changed the deduct the cost of meals or entertainment (in-
duct it as wages subject to income tax withhold- rules for the deduction of food or beverage ex- cluding the use of facilities) you sell to the pub-
ing, social security, Medicare, and federal un- penses that are excludable from employee in- lic. For example, if you run a nightclub, your ex-
employment taxes. This part of the allowance is come as a de minimis fringe benefit. For pense for the entertainment you furnish to your
treated as reimbursed under a nonaccountable amounts incurred or paid after 2017, the 50% customers, such as a floor show, is a business
plan (explained later) under Nonaccountable limit on deductions for food or beverage expen- expense that is fully deductible. The 100% limit
Plans. ses also applies to food or beverage expenses doesn’t apply to this expense.
excludable from employee income as a de mini-
Meals mis fringe benefit. While your business deduc- Providing meals or entertainment to gen-
tion may be limited, the rules that allow you to eral public to promote goodwill. You can
Under an accountable plan, you can generally exclude certain de minimis meals and meals on deduct the cost of providing meals, entertain-
deduct only 50% of any otherwise deductible your business premises from your employee's ment, or recreational facilities to the general
business-related meal expenses you reimburse wages still apply. See Meals in section 2 of public as a means of advertising or promoting
your employees. The deduction limit applies Pub. 15-B. goodwill in the community. The 50% or 100%
even if you reimburse them for 100% of the ex- limit doesn’t apply to this expense.
penses. Company cafeteria or executive dining
room. The cost of food and beverages you Director, stockholder, or employee meet-
Application of the 50% limit. The 50% de- provide primarily to your employees on your ings. You can deduct entertainment expenses
duction limit applies to reimbursements you business premises is deductible. This includes directly related to business meetings of your
make to your employees for expenses they in- the cost of maintaining the facilities for provid- employees, partners, stockholders, agents, or
cur for meals while traveling away from home ing the food and beverages. These expenses directors. You can provide some minor social
on business and meals for business customers are subject to the 50% limit unless they are activities, but the main purpose of the meeting
at your place of business, a restaurant, or an- compensation to your employees (explained must be your company's business. These ex-
other location. It applies to expenses incurred at later). penses are subject to the 100% limit.
a business convention or reception, business
meeting, or business luncheon at a club. The Employee activities. The expense of provid- Trade association meetings. You can de-
deduction limit may also apply to meals you fur- ing recreational, social, or similar activities (in- duct expenses directly related to, and neces-
nish on your premises to your employees. cluding the use of a facility) for your employees sary for, attending business meetings or con-
ventions of certain tax-exempt organizations.
is deductible and isn’t subject to the 50% limit.
Section 210 of the Taxpayer Certainty The benefit must be primarily for your employ- These organizations include business leagues,
TIP and Disaster Tax Relief Act of 2020 ees who aren’t highly compensated. chambers of commerce, real estate boards,
provides for the temporary allowance For this purpose, a highly compensated em- and trade and professional associations.
of a 100% business meal deduction for food or ployee is an employee who meets either of the
beverages provided by a restaurant and paid or following requirements. Nonaccountable Plans
incurred after December 31, 2020, and before
January 1, 2023. 1. Owned a 5%-or-more interest in the busi- A nonaccountable plan is an arrangement that
ness during the year or the preceding doesn’t meet the requirements for an accounta-
Related expenses. Taxes and tips relat- year. An employee is treated as owning ble plan. All amounts paid, or treated as paid,
ing to a meal you reimburse to your employee any interest owned by their sibling, under a nonaccountable plan are reported as
under an accountable plan are included in the spouse, ancestors, and lineal descend- wages on Form W-2. The payments are subject
amount subject to the 50% limit. However, the ants. to income tax withholding, social security, Medi-
cost of transportation to and from an otherwise 2. Received more than $130,000 in pay for care, and federal unemployment taxes. You can
allowable business meal isn’t subject to the the preceding year. You can choose to in- deduct the reimbursement as compensation or
50% limit. clude only employees who were also in wages only to the extent it meets the deductibil-
the top 20% of employees when ranked by ity tests for employees' pay in chapter 2. Deduct
Amount subject to 50% limit. If you provide pay for the preceding year. the allowable amount as compensation or wa-
your employees with a per diem allowance only ges on the appropriate line of your income tax
for meal and incidental expenses, the amount For example, the expenses for food, bever- return, as provided in its instructions.
treated as an expense for food and beverages ages, and entertainment for a company-wide
is the lesser of the following. picnic aren’t subject to the 50% or 100% limit.
• The per diem allowance. Miscellaneous Expenses
• The federal rate for M&IE. Meals or entertainment treated as compen-
If you provide your employees with a per sation. The 50% limit doesn’t apply to either of In addition to travel, meal, and certain entertain-
diem allowance that covers lodging, meals, and the following. ment expenses, there are other expenses you
incidental expenses, you must treat an amount 1. Expenses for meals or entertainment that can deduct.
equal to the federal M&IE rate for the area of you treat as:
travel as an expense for food and beverages. If a. Compensation to an employee who Advertising expenses. You can generally de-
the per diem allowance you provide is less than was the recipient of the meals or en- duct reasonable advertising expenses that are
the federal per diem rate for the area of travel, tertainment, and directly related to your business activities. Gen-
you can treat 40% of the per diem allowance as erally, you can’t deduct amounts paid to influ-
the amount for food and beverages. b. Wages subject to withholding of fed- ence legislation (for example, lobbying). For
eral income tax.

Page 46 Chapter 11 Other Expenses