Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Aug 13

    According to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses (Revised Jan 10, 2010), you can “generally deduct 50% of your business-related meals and entertainment expenses.” It goes on to say, “the 50% limit applies to employees or their employers, and to self–employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed.” Figure A (shown) diagrams this in flow chart form. Note that the first block in figure A says “If self-employed, count only reimbursements…not included on Form 1099 MISC.” If they are included, therefore, the answer to the question is “No” and the expenses are limited to the 50% deduction.

    There are, however, certain exceptions to the 50% limit. For the exception for self-employed persons to apply all three of the following must occur:

    1) You must incur the expenses as an independent contractor,

    2) Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform,

    3) You provide adequate record of these expenses to your customer or client.

    Here’s the sticking point, and the point at which some may say that the government sets the per diem rates and therefore they deem it necessary for meals and therefore you are entitled to write off 100% of the expense.

    However they would be in error.                                                   

    What the IRS requires is adequate records and barring an employer-employee relationship and an accountable plan, adequate records means documentary evidence (read receipts).

    If you are an independent contractor and not an employee, you cannot have an accountable plan.

    IF, however, you submit an accounting to your client/customer, i.e., provide them with the receipts in order to get reimbursed or to collect the per diem allowance, THEN you can deduct 100% of the meals expense if it is included on Form 1099 MISC, but the more accurate reporting in that case would be for your client/customer not to report it on Form 1099 MISC at all.—In that case the client/customer’s deduction is limited to 50%.

    Without adequate reporting your deduction is limited to 50% of your actual or per diem meals expense.