Small Business

Two Coffees, Hold the Full Deduction


Q: I have a home-based business. I meet with many other consultants and independent contractors who also have home-based businesses. We meet at a restaurant or coffee shop somewhere between our offices. In other words, these coffee shops become our portable office. Is the cost of coffee or a meal fully deductible as a business expense, or is it considered meals-and-entertainment and only partially deductible?

A: The cost of coffee or a meal you have while meeting with clients, customers, or colleagues is not fully deductible. You are allowed to deduct only 50% of the cost as a business expense.

There are a few exceptions to the 50% limit. They are:

If you are self-employed your meals are not subject to the 50% limit if all three of the following apply:

1. You incur the expense as an independent contractor.

2. Your client reimburses you, or gives you a meal allowance

in connection with the services you perform.

3. You have adequate records of the expenses, whether paid by you or by your client.

The 50% limit does not apply if you provide meals to the general public as a means of advertising or promoting goodwill in the community or if you pay for a package deal that includes a ticket to a qualified charitable sports event.

Note: If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you. You are not required to claim any of the reimbursement as income on your tax return.

Cindy Hockenberry, Enrolled Agent

Information Coordinator

National Association of Tax Practitioners

Editor's note: While the information in Tax Adviser represents the opinion of an expert, it is not legally binding. Do you have a small-business tax question? Tax professionals will answer your questions in the Tax Adviser column, appearing here Wednesdays. E-mail Taxadviser@businessweek.com. We will not print your name, address or phone number, but please provide this information.


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