What is the difference between 100% Meals and 50% Meals for write-offs against 1099-Misc income?
My understanding is that if I charge a client $2000 for some consulting work plus $100 worth of expenses for meals, he’ll give me a 1099 showing $2100 in income. Those meals would be 100% meals. If I take a client or vendor to lunch for a discussion, that meal would be a 50% meal. Right?
I know that I can show a net loss on a Schedule C (or C-EZ) and that this loss will be a write-off against any W-2 income. I have heard that you can’t show a loss every single year though, right? It’s something like you must show a profit at least two out of every five years. What if I showed a like a $1000 loss for three years and then only a $1 profit in the two years?
You can show a loss every year for decades. However, if your business is “hobby-like” then a profit for two years can be a strong argument that it is really a business and not a hobby. But again, a large loss for 3 years vs a tiny and clearly forced profit for two would not qualify.
My Bro suggests that you consult a tax professional- a CPA, or an Enrolled Agent (EA).
This is good info. I knew about the hobby thing but I thought that all businesses would be considered a hobby if there wasn’t ever a profit. In my case it is engineering consulting so I am not worried about legitimacy.
What scam potential there is for this. I am relatively conservative on my write-offs but I will still show a loss this year. Not only do I get a couple of thousand tax free dollars, I can also get an additional tax break because of it. It’s like Bizarro World.
Link to Pub535 (pdf) (html). You are basically correct, you can deduct the full amount of meals sold if they are included in your gross receipts. However, there are many other reasons besides this where you can deduct more than half.