Question

In each of the following situations, indicate whether the 50% reduction for meals applies.

1. Each year, the employer awards its top salesperson an all-expense-paid trip to Jamaica.

2. The employer has a cafeteria for its employees where meals are furnished at cost.

3. The employer sponsors an annual Labor Day picnic for its employees.

4. Every Christmas, the employer gives each employee a fruitcake.

5. The taxpayer gives business gifts to her clients at Christmas.

Answer 1

1) Solution: Not applicable
Explanation: The award is included as compensation to the employee thus it would be fully deductible by employer and not eligible for 50% reduction for meals

2) Solution: Applicable
Explanation: As meals are not inclusive of the compensation of employees thus the 50% reduction for meals is applicable

3) Solution: Not applicable
Explanation: The recreational activities are paid by employer thus are not subject to the 50% reduction for meals

4) Solution: Not applicable
Explanation: The fringe benefits will not be subject to the 50% reduction for meals

5) Solution: Not applicable
Explanation: The business gifts will not be subject to the 50% reduction for meals