Most family child care providers are very familiar with how to claim expenses for food served in their home to the children in their care.
But what about these situations?
• You take a prospective or current day care parent out to dinner at a restaurant and pay for the meal.
• You take your employee out to lunch on Saturday.
• You take your spouse out to eat Friday night and talk about how to better promote your business.
• You travel and stay overnight at the NAFCC national conference in Atlanta in July and eat meals for three days while attending the conference.
Can you deduct the cost of food in all of these situations, and if so, how much of the cost can you deduct?
As a general rule, you can deduct 100% of the cost of food served to day care children or their parents in your home. Most family child care providers use the standard meal allowance rate to deduct food costs to children. If you throw parties for day care parents or invite them over for dinner, use 100% of the actual cost of the food and deduct it as an “activity expense.”
Outside Your Home
When you pay for business meals eaten outside of your home you can only deduct 50% of the cost. See IRS Publication 463 Travel, Entertainment, Gift and Car Expenses.
If you take a prospective parent out to dinner you must meet the following tests before you can deduct 50% of the cost of their meal and your meal:
• There must be a clear business purpose for the meal.
• You must save the food receipt that shows the name of the restaurant.
• You must record the name of the other person(s).
• You must record what business topics were discussed.
Taking a prospective parent out to dinner where you hope to enroll the parent in your program would meet the definition of a business meal. Taking a current day care parent out to dinner when you did not discuss anything about the care of her child would not be a business meal you could deduct. Even if you did discuss business with a current parent, you could only deduct the meal if the primary reason for the meal was business related.
In addition, taking employees out to lunch on Saturday would be considered a business meal if the primary reason for the meal was business related.
If you attend local family child care association meetings, you could deduct 50% of the cost of your meal if the meeting was held at a restaurant. Be sure to keep food receipts and a record of who else was present and what was discussed.
Meals with Spouses
I’ve seen providers claim meals they eat out with their husbands where they talked about the provider’s business. If the husband is your employee, then claiming meals where the main discussion was about the business makes some sense, as long as the number of meals is reasonable. Twice a month seems excessive.
If your husband is not your employee, I would be much more cautious about claiming restaurant meals. The reason is that you would have a difficult time showing that the clear purpose for the meal was business related. Yes, you can say that you discussed business issues, but the IRS will likely look at this closely. I have represented providers in audits where some of such meals were allowed. If you are going to claim these meals, don’t claim more than a handful in a year.
If you attend a workshop about child development on Saturday morning, can you deduct the cost of your lunch after the workshop is over? Maybe. If you have lunch with another provider and discuss your work, then yes, deduct 50% of the cost of your food. If you eat alone, or don’t discuss business with another person, the answer is no.
Deducting meals while traveling to business conferences where you stay overnight is easier to claim. You can deduct 50% of the cost of meals eaten while attending such conferences. If you spent three days at the NAFCC Atlanta conference and two days sightseeing, you can deduct meals for three days.
You can use a federal per diem meal allowance rate for claiming meal expenses when traveling away from your home overnight for business conferences. This is different than the standard meal allowance rate you use for claiming food expenses served to children. The federal per diem is $46 a day, with a higher rate for selected urban areas. The rate for Atlanta, for example, is $56 a day. For a list of all the rates, see the Government Services Administration website. Search by state and then look under the column “Meals & Inc. Exp.”
When using the federal per diem rate, you can only claim 50% as a business expense. For example, if you spent 3.5 days in Atlanta you could deduct $98 as a business expense ($56 x 3.5 days = $196 x 50% = $98). Report this expense on Schedule C, line 24b (Deductible meals and entertainment).
Tom Copeland – www.tomcopelandblog.com
Image credit: en.wikipedia.org
For more information on claiming business deductions, see my book Family Child Care Record Keeping Guide.