Business meal expenses are partially deductible.
The IRS taxes corporations in two ways. Under Subchapter C of the Internal Revenue Code, corporate income is taxed separately. Under Subchapter S, corporate income is generally not subject to federal income tax; however, this income is attributed to shareholders and taxed as individual income. In both cases, many business expenses may be deducted from taxable income.
Payroll Expenses
Corporations may deduct salaries and wages for employees, including benefits such as health insurance and pension plans. Corporations may not deduct compensation of over $1,000,000 paid to their CEO or to any of their three highest-paid employees. Be careful when calculating this deduction -- if you deduct the value of a car supplied for an employee's use, don't deduct depreciation on the value of the car as well, because this amounts to double-counting the deduction.
Overhead
A corporation may deduct the cost of goods sold from its taxable income. It may also deduct rents paid for equipment or vehicle leases, as well as a certain amount for business-related travel, meals and entertainment. It may deduct the cost of membership in professional associations (not including social organizations such as country clubs), and the cost of employee professional development and training programs. It may also deduct the cost of subscribing to professional journals that are related to the corporation's business.
Advertising and Promotion
Corporations may deduct reasonable amounts for advertising and promotion, as long as they are related to the company's business. Promotion constitutes activities that do not include direct appeals to purchase company products, but tend to increase company sales in the long run. A financial institution, for example, may offer an investment seminar in the hopes of establishing itself as an authority in the field and attracting potential clients. Deducting the cost of a charitable campaign designed to improve the image of the company, however, might be questioned by the IRS.
Taxes, Interest and Bad Debts
A corporation may deduct the cost of state and local taxes paid from its taxable income, but may not deduct federal income tax. It may not deduct taxes also deducted under another category -- for example, the cost of goods sold may include taxes, and these taxes cannot be claimed under two categories. Corporations may write off the amount of debts that become worthless during the tax year. They may also deduct taxable interest paid, within complex limitations imposed by the IRS.
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