I am no expert, but I think the original question is how to avoid overstating the Meals and Entertainment expense, which is normally deductible at 50%. The IRS allows full deduction of customer-reimbursed Meals and Entertainment (assuming they're reasonable and customary business expenses) since these pass-through and net to zero. For example, a business with $1000 in service sales, $100 in billable Meal expenses, and $100 in other non-billable expenses, bills its client for $1,100. Its sales should be $1,000, the Meal expense should zero out, and taxable income should be $900 ($1,000 - $100.) If you treat Meals as any other expense, sales would be $1,100, DEDUCTIBLE expenses would be $150 (50% of the Meals plus $100 other expenses), and taxable income would be $950. Am I missing something here?
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