Did you grab a bite to eat while on your way to scout new properties? Real estate investors often incur expenses for meals when operating their businesses, but there are a few important points of which to be aware.
The default expense categories match the IRS Schedule E categories, which is why the initial options may feel sparse and why there is no preset option for business meals. That being said, you can absolutely update your chart of accounts to add an expense account for meals!
Typically, business meals are only 50% tax deductible! Read more on REI Hub's recommended way to book business meals.
To access the chart of accounts page, open the right-side menu by clicking the three horizontal lines next to your name in the upper right corner of the page. Select the Chart of Accounts page from there, and then click Add Account at the top of the left-side menu.
When updating your chart of accounts, you can create new top-level accounts or sub-accounts; we generally suggest creating new expense accounts as sub-accounts beneath one of the defaults for the cleanest possible end-of-year reporting. We recommend creating meals as a sub-account of the Auto and Travel expense category.
Additionally, please be aware that business meals are typically only 50% deductible. You could title the expense account 'Meals - 50% deductible' if that would be helpful for remembering at tax time!
As for booking these transactions, you have a couple of options.
First, you can split the imported transaction based on your ratio of business to personal use and only book the business portion as an expense. This keeps your books more accurate daily but requires a bit more work for each transaction.
Second, you can book 100% of the meals as an expense throughout the year and then conduct your proration once at tax time. This is more convenient throughout the year but overstates your expenses until you prorate.
Be sure to keep the receipt by adding it to the transaction.
Still have questions? Reach out to our Support Team via email at [email protected] or call us at (888)939-6865.