Question

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

Each year, the employer awards its top salesperson an all-expense-paid trip to Jamaica.
The employer has a cafeteria for its employees where meals are furnished at cost.
The employer sponsors an annual Labor Day picnic for its employees.
Every Christmas, the employer gives each employee a fruitcake. The taxpayer gives business gifts to her clients at Christmas.

Answer 1

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

• This should be considered as part of the employees' compensation (and the employee should be taxed), therefore, the company can deduct 100% of it.

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

• Cafeteria meals are not included in the 50% deduction.

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

• This is considered a recreational activity paid by the employer, so the 50% deduction does not apply.

Every Christmas, the employer gives each employee a fruitcake.

• It is a fringe benefit, although I doubt that the employees are taxed for receiving a fruit cake. There is no 50% deduction. (referred to as de minimis fringe benefit)

The taxpayer gives business gifts to her clients at Christmas.

• Business gives are not subject to a 50% deduction, instead they are subject to a $25 limit.