Manufacturing Business Expenses: 4 Tips for Deducting Meal & Entertainment Costs
Manufacturing owners have numerous questions around travel and entertainment expenses when attending trade shows, visiting with customers, meeting with suppliers, golf outings and other business trips. The rules and record-keeping can be a nightmare for the accounting team and personnel involved. Below is a summary of the rules and tips that may make it easier on your team.
1. Keep timely and detailed records
Manufacturers need to keep detailed records to substantiate business expenses. This is especially important with items that could be interpreted as personal expenses by an IRS auditor. If the company is audited by the IRS, they will likely request the support for these expenses and the burden is on the company to prove that it is a valid business expense and is being treated properly.
The records should include the following details:
- The total amount of expense
- Time and place expense occurred (ex: Pete’s Grill, July 20, 2019)
- Members in attendance
- The business purpose (ex: meeting with VP of operations regarding presses and extruders for new product line)
2. Review policies and procedures
By revisiting your travel policies, you can tighten up your guidelines for any changes that need to be made related to the Tax Cuts and Jobs Act of 2017 (TCJA). Consider changing your expense report procedures to verify that all the relevant information is being captured and require the employee to provide timely and accurate information for the expense to be reimbursed. A best practice for any manufacturer would include training your sales reps and create a short pdf matrix for the manufacturing sales team to reference with questions regarding the company expense reporting policies.
3. Use your general ledger as an advantage
When entering the expenses or bills into your general ledger system, break out the categories of expenses into different accounts. For example, have different accounts for 100% deductible travel, 100% deductible meals, 50% deductible meals, 0% deductible entertainment and other expenses. This could help save time at year-end in providing the information to your tax accountant.
4. Revisit the Rules
The rules surrounding meals and entertainment underwent stricter limitation changes under TCJA and the release of IRS Notice 2018-76. We are still expecting additional guidance to be issued in proposed regulations.
For travel and meals to be deductible, it must be conducted for a business purpose. In simple terms, travel expenses must be relevant to your business, for instance, to a manufacturing expo, trade show, or customer visit, and business must be discussed at a meal with a business contact.
Entertainment is not a deductible business expense. Examples of entertainment include tickets to sporting events, theater tickets, golf outings and other similar leisure activities.
We have provided some transitional guidance that may be used in determining the deductibility of business meals. If you are unsure of how an expense should be classified, consult your tax advisor when it occurs so you’re not doing extra work at year-end.
Melissa G. Dunham?>
CPA, MTax, MBA
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