Mastering Business Meal Deductions: A Guide for Painters

Welcome to the Profitable Painter Podcast. The mission of this podcast is simple: to help you navigate the financial and tax aspects of starting, running, and scaling a professional painting business. From the brushes and ladders to the spreadsheets and balance sheets, we've got you covered. But before we dive in, a quick word of caution: while we strive to provide accurate and up-to-date financial and tax information, nothing you hear on this podcast should be considered as financial advice specifically for you or your business. We're here to share general knowledge and experiences, not to replace the tailored advice you get from a professional financial advisor or tax consultant. We strongly recommend you seeking individualized advice before making any significant financial decision.

This is Daniel, the founder of Bookkeeping for Painters.

And this is Richard, tax director with Bookkeeping for Painters.

How's it going?

It's going really good. Um, it is the beginning of September. The first NFL game of the season was last night, so that was enjoyable to watch. Uh, maybe not so much if you're a Kansas City fan, but, uh, it was a good game nonetheless. So I'm excited to get back to football.

Yeah, Daniel's looking at me like, yeah, I totally— I, I watch MMA, UFC when I can, but I, my dad was really big into football, and then, um, so I was very familiar with it growing up, but then I just, I, I stopped following it. So, um, I'm, I'm more, I'm more like the, the more violence. It's not violent enough for me, you know.

Football's not American football. It's not— gotcha. Okay.

Yeah, there needs to be blood to be entertained, right?

Um, Yeah, so I have not heard that one before, but, uh, but I, I appreciate you sharing. Um, so was your dad a big Washington fan then?

No, Giants. New York Giants was his. Okay. Yeah, I— not that he was born in New York, but he just grew up there, I guess, a, a pivotal, pivotal time in his life or something, and he, he started following the New York Giants, so that was his team.

Awesome. Awesome. Well, you know what's not bloody and violent is— at least I hope not— is your, is your meals, your business meals. Worst segue ever. Yeah, but that's, that's what we got to talk about today is, is having meals and can you deduct those meals as a business owner? And this one is is complicated, to be honest with you. There's a lot of rules around it and a lot of misunderstanding. So I thought maybe we could talk about some examples, what you can deduct, what would not be deductible, and maybe give a little bit of guidance as to how you might be able to structure things to be a little bit more tax advantaged when it comes to lunchtime.

Yeah, it's definitely complicated. I mean, of the, the, all the things in the tax code that are complicated. You would think going and buying some food would be a pretty straightforward transaction that would be deductible or not deductible, but that's definitely not the case. And also it keeps changing, uh, so that make it more, to make it more confusing.

Yeah. Yeah. You know, there was a time when not only meals but also entertainment was tax deductible. So you could buy a client or a customer, you know, tickets to the next Giants game, and you guys could go and talk a little business, build a little relationship, and enjoy a tax deduction. Well, the entertainment portion has been completely removed from the tax code by the Tax Cuts and Jobs Act of 2017. So no more baseball tickets, no more football tickets, concert tickets, rounds of golf. All of that is zero deductible, deductibility, zero deductibility. Still fun, but not tax deductible. However, the meals portion does remain. So if you are going out to some kind of entertainment venue and you can get a separate statement of what part of the ticket was for entertainment and what part of the ticket was for dinner, you could deduct the dinner part but not the entertainment part.

So if you take your painters out to an NFL game, the ticket to go into the stadium is not tax deductible. But when you wave down the hot dog guy, you can deduct that part if you buy it for your employees.

Possibly, yes.

And it's like an annual, I guess, an annual employee appreciation type thing.

Yeah, the entertainment part. So again, there's a lot of gray area here, but the entertainment part is going to probably not be deductible. This more likely comes up in a situation where like, let's say you buy the skybox at the NFL game and they give— if you can get them to give you a separately stated bill where X amount was for tickets to the game and X amount was for the buffet, then the part for the buffet, because it is a meal, that could be tax deductible. But you have to have it separated. And if you can't get a separate statement, the IRS is going to disallow the deduction under audit. So the meal part is tax deductible, but even that has been restricted where most business meals are tax deductible only at 50%. And you might be thinking, wait a second, I know I filed my taxes last year. I took 100% deduction. That was last year and that was in 2021. We had a little bit of a special circumstance. We were coming out of COVID Congress wanted to encourage people to eat out more, so they made restaurant meals 100% deductible for 2021 and 2022. Now we're in 2023 and that special provision has ended. We are back to the standard of only 50% deductible. So what kind of meals can be deducted? Well, that is covered by Section 274 of the Internal Revenue Code, and the wording there is that the food and beverage must be provided to a current or potential business customer client, consultant, or similar business contact. So like most great legislation, it is vague and open to interpretation. So I'm thinking we could maybe talk about some examples as what does count as a business meal and then talk about some examples of what does not count as a business meal.

Yeah. And, and you also have this nice graphic. I think we could do a screen share for folks that are watching on YouTube. We could— they could see this. It might be easier to kind of absorb too.

Okay. Yep. And just a little disclaimer, I did not create this. So, but it is, it is pretty useful. So Yeah, one of the biggest things here is if you are a business owner and you are taking out, say, a current customer to lunch, you've maybe done 3 or 4 projects for this customer and you're trying to build a relationship with the hope of getting future work. That is absolutely a business meal because you are expecting to get some kind of business benefit from taking them out. So that would be something that is definitely deductible. You know, another great example is a work meal with a colleague. So another, another painting business owner where you discuss best practices, challenges that you're facing in your industry, kind of encouraging each other, learning and building off of each other's experiences. That's going to give you a business benefit. That's a deductible meal.

Yeah. So like if you, if you have like a, if you do BNI or something like that and you link up with a fellow business owner, discuss business, that would qualify as a 50% deductible.

Yeah. If you guys go out in person to a restaurant, that would be 50% deductible. Yes. Yeah. Another example might be if you provide food for your employees. So if you're at a worksite, it's a hot summer day, you've got this big exterior job going on and you want to make sure that nobody is getting dehydrated. So you buy Gatorade and bottled water for the crew. That is a business meal. That's deductible. Same thing if it's a cold winter day and you buy coffee and donuts for the crew or, you know, however, whatever they like to eat. Maybe it's, I don't know, beef jerky and Dr Pepper, but whatever makes them happy and keeps them, you know, focused on the task, that can be a business meal for sure. A couple other examples. We could be, oh, we could be networking. So networking is kind of a broad thing. Maybe it's not another painting business owner, but it's somebody who could help you with your advertising or your, you know, maybe it's your lawyer or maybe it's a business coach. You're building your business network, creating those relationships and you're getting a business benefit from that. Obviously you're talking business during this meal. That could also be a write-off. Now, some— we do want to keep records, so we always want to have some kind of source document in case, you know, if we ever get examined by the IRS. So You're going to want to keep a receipt, especially if the meal is over $75. You have to keep a receipt. It's under $75. There's some wiggle room there, but best practice, go ahead and keep that receipt and maybe jot down on the face of it what you discussed or what the purpose of the meal was. So you're taking your customer out, you might jot down, discussed Smith painting project. Or you're going out with your business coach, you know, brainstorm session with business coach, just something to substantiate the purpose of that meal. Yeah.

And meals are kind of looked at a little bit closer, similar to vehicles, when, when you're being audited, because there, there's a lot of gray areas. So If you're going to keep receipts, you know, if you're going to keep any receipts, definitely the meals are going to be the ones you want to keep because of what you're saying. That's— those are the ones that the IRS are going to request. If you especially have a lot of meal purchases, they're going to request those. And not just the receipts themselves, but like you said, like actually having a reason why you deducted it. And the easiest way— that's something we help folks out with. Is get them set up on some receipt management software where they can basically have an app on their phone. They, you know, go out to eat with a referral partner or take their employees out or take out a client, whatever it is. And then they just write on the face of the receipt and then they snap a picture of that receipt and that goes into the cloud storage and they're good to go. That's one option. Obviously you could also just keep like a hard copy of it too. But if you're like me and I don't like to have any kind of paper, I like to just keep it in the cloud, you can just use some sort of receipt management software.

Yeah, absolutely. Always good to have some kind of contemporaneous record. That's the fancy term for it. Because if you ever do get examined, it's great to know that you've got the paperwork to back it up. And I think there's something satisfying about dropping a shoebox full of receipts in front of an IRS auditor or sending him a PDF that's 100 pages long of receipts. So we talked a lot about what a good business meal would look like. Maybe we could talk a little bit about what wouldn't qualify as a business meal. So this is kind of a The debt.

Yeah, yeah, I quite frequently, especially with the newer business owners, they kind of start using their business debit card as kind of their, you know, oh, I'm, I'm driving in between jobs, I gotta go, you know, I'm kind of hungry, I'm gonna stop by McDonald's and just input on the business card. So they'll have just a ton of really just personal purchases and they're— it's just meals for themselves going out. And I have to explain quite frequently that that is not a deductible expense. You know, you can't just use your business account as like your own kind of piggy bank and just buy food for yourself and think it's deductible.

Yeah, unfortunately not. We kind of have a rule of thumb that if you're by yourself, it's probably not a deductible meal. Now, some people ask, well, well, what if I'm by myself but I'm on the phone doing business with the client? Yeah, they kind of need to be there with you if you're going to deduct the meal. So that, that would not count. Now, there is, there is an exception. If you're traveling. So if you are traveling for business and that is defined as being more than 100 miles away from your tax home, then the meals you eat on the road for business could be 50% deductible even if you're alone. But generally speaking, they would not be. So some other—

so if you travel, if you go, if you're going to the PCA convention, uh, you know, this, this year I think it's in Orlando, basically that the travel there, if you're, you know, had to, you got hungry, got a meal, that is 50% deductible.

Correct. So like, uh, you know, your, your dinners while you're down there, your breakfasts, those could be 50% deductible because you're traveling for business. Yes. Yeah, they do. They do have that 100-mile radius. So traveling to the other side of your hometown for business would not, would not count. But, but yeah, if you're traveling out for sure, for sure. Something else that would not count as a business meal. Is snacking while working. So you may be putting in a marathon session in your office and you say, I'm getting so much work done, I am being uber productive. I do not want to stop for lunch. I'll have takeout brought in. That's great. I love the work ethic. Unfortunately, the takeout is not going to be tax deductible. You have the option of leaving and going and having a lunch break. And so because that option is available to you, even if it's not the most productive use of time, that meal is probably not going to be tax deductible. Now, if you're in a very special situation where your job requires you to eat on the job, then that might be a different situation. So that might look like a secure, you're, you're a professional eater.

Like you're a prof—

oh wow. See, see, yeah, that you're, you're bringing in the, in the tough questions now. This is a little bit off topic, but I would say if what you're eating is directly related to your, you know, professional eating career, so you're, you're training, this is not lunch, this is training. then those hot dogs would probably be tax deductible. But having a hot dog for a normal lunch, even though you're a professional eater, that, that would not be.

Another situation might be like, should we, should we all become part-time professional eaters, like as a, you know, a side job so that we can deduct all our food? I'm training for a competition and to win prize money.

Yeah, I'm, I'm probably not going to recommend that. I don't think the already overburdened healthcare system could handle, uh, that sort of thing. Um, but yeah, so, okay, so Daniel, pull me back if I get too off in the weeds here, but this kind of goes towards something we see a lot too, where people say I'm a content creator and I have a brand, and so I have to drive a Mercedes and I have to wear a Rolex for my brand, or my job is to create YouTube videos where I test out new Apple products or I go on luxurious vacations. I'm going to write everything off. And the IRS has, you know, been very wise to these types of schemes for a while. and they will allow you to write off the portion of these things that is directly related to the production of income. So if you test Apple products for a living and you buy an iPad, you film yourself testing it, and then you get rid of that iPad and never use it for personal use, then yes, that could be a tax deduction. But the minute you use it for yourself, or you drive that Mercedes for personal use or wear that Rolex off camera, then it becomes a personal item. So those, those types of things would not be tax deductible. That's, that's kind of some, some bad, you know, social media tax advice that we see a lot. And I thought I'd just go ahead and, and address that. It really has to be directly related to business. So, you know, someone who's a professional eater wanting to write off every meal, that's not going to fly. You'd have to link that to a direct production of income.

You're crushing my dreams, Richard.

Yeah, that— see, that's what accountants do. We're— we suck all the fun out of everything. Um, that's why I love accounting, because it makes people cry. Uh, all right, so let's say you're a— okay, let's give an example of where this might work. You are a security guard and you cannot leave your post. If you leave your post for 5 minutes, your job would be in jeopardy. Um, you know, you would not succeed as a security guard, so you are required to eat your meals at your post, that could be tax deductible. Maybe a soldier who cannot, you know, walk away from his post. Um, of course, soldiers probably don't need to worry about deducting meals, but, but you kind of get the idea. Like, like, it has to be a requirement for the job. Um, another, another one that I have heard is I work from home, so I am going to stock my home office with groceries. My home office being my, my personal refrigerator in my kitchen. Yeah, that's not going to fly for all the reasons that we mentioned before. Yes, it is true that the business owner has to eat in order to produce income, but that one has been ruled on before. That's not going to work. Another thing that might not work out too well is lavish or excessive work meals. So it's one thing to treat the office to a fancy steak and lobster dinner around the holidays to show employee appreciation. That one might actually be 100% deductible because it's a special employee appreciation event. It is not reasonable to have steak and lobster brought into the office every night. That one's probably not going to fly.

What if I have a bunch of allergies and I can only eat lobster and steak?

You know, then, then you should probably pack that in your lunchbox and, and stink up the break room with the microwave. Yeah. Again, I'm like, by all means, I mean, if you love lobster, you should eat lobster every night. But we can't expect to write that off on our taxes. You know, there's, there's a, there's a level of, you know, they talk about facts and circumstances. Would a reasonable person consider this to be an ordinary and necessary business expense? Coffee and donuts for the team meeting. That seems totally reasonable. Steak and lobster for yourself every night. Like, like we know that's not going to fly, right? And so, you know, there is a lot of gray area here. You are ultimately responsible for the decisions you make, but we want to try and give you some guidance so that if you ever do get a dreaded examination by the IRS, you're not caught flat-footed. You know what can be deducted, how to substantiate those deductions, and you also know what you can't get away with. So I don't know, all this talk has made me kind of hungry. That steak and lobster sounds good.

Yeah, I think— I think I'm going to have some steak tonight. Sounds good.

All right. Awesome. Well, as long as you don't try and write it off, I think that sounds like a lovely idea. If you have questions about what might be a deductible meal or maybe what is the best way to structure things so that you are staying within ordinary and necessary, please feel free to drop us a question. Daniel, where should they go? Where should our listeners go if they have questions?

Yeah, definitely check out— go to Facebook, type in the search bar Grow Your Painting Business, and you can join the private group and join the discussion. Ask any questions that you have on deducting meals, and we'll definitely get back to you. Or if you have any input on our next episode, any ideas, We'd love to hear from you.

Yeah, awesome. And if you'd like to send Daniel some steak and lobster— no, no, I'm just kidding. We won't post any addresses. But anyway, I appreciate everybody listening. This one got a little off track, but I appreciate everyone sticking with us. Enjoy the rest of football season, everyone. I hope your home team does well. Uh, unless they're playing the Dolphins, and then, and then I hope differently.

All right, we'll talk to you next week. Have a good one.

All right, thanks everyone.