Deductions & credits

KennethB · ‎June 6, 2019

Per IRS Publication 535 - Business Expenses, "Start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership."

Concerning your question about grouping meals with travel, if you have expenses that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes one or more meals in its room charge.

Generally, business-related meal and entertainment expenses are subject to the 50% limit.

Expenses not subject to 50% limit Per IRS Publication 463 - "Travel, Entertainment, Gift, and Car Expenses" are listed as follows:

1 – Employee's reimbursed expenses.

If you are an employee, you aren’t subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan.

2 – Self-employed.

If you are self-employed, your deductible meal and entertainment expenses aren’t subject to the 50% limit if all of the following requirements are met.

You have these expenses as an independent contractor.
Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.
You provide adequate records of these expenses to your customer or client.

In this case, your client or customer is subject to the 50% limit on the expenses.

3 – Advertising expenses.

You aren’t subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit.

4 – Sale of meals or entertainment.

You aren’t subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, isn’t subject to the 50% limit.

5 – Charitable sports event.

You aren’t subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event.

Individuals subject to "hours of service" limits:

You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's "hours of service" limits. The percentage is 80%.

Individuals subject to the Department of Transportation's "hours of service" limits include the following persons.

Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations.
Interstate truck operators and bus drivers who are under Department of Transportation regulations.
Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations.
Certain merchant mariners who are under Coast Guard regulations.

For further information, please see IRS Publication 463 - "Travel, Entertainment, Gift, and Car Expenses" at the following link: https://www.irs.gov/pub/irs-pdf/p463.pdf