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Board Meeting Deduction

  Sanjiv Gupta CPA  Published 
Board Meeting Deduction

The expenses related to the working of a board of directors are evidently termed as ordinary and necessary expenditure of conducting business as per Income Tax rules and are thus deductible. A board meeting is specifically meant for company directors. It is not a general body meeting where only the shareholders meeting, but it is a meeting where the directors discuss various issues and future prospects of the company. The legal responsibilities of the board members depend on the nature of the organization and the jurisdiction. The board meeting is organized at a regular interval and is headed by the chairperson of the organization who is also responsible to maintain a formal atmosphere during the meeting. It comprises a fixed number of eligible members (Directors only) and everyone is bound by the rules, regulations and any resolutions that are passed in the meeting. The meeting is conducted under the presence of President, Vice President, Treasurer, and Secretary.   Other official members may also be present. Recording the Minutes of the Meeting is important.

In a board meeting, the directors do the following:

  •  Evaluating the company’s growth, success, and profit and governing of the organization
  • Establishing company policy and objective
  • Accounting to the shareholders and report about the accomplishment of the organization
  • Approving annual budget and ensuring the organization’s capability of producing funds
  • Setting salaries of the management and employees

To legitimately write off taxes, expenditure in business should be simple and necessary to be deductible. A simple expense is one that is ordinary and common and is accepted in industries. A necessary expense is one that is helpful and apt for the business. An expense does not have to be imperative to be regarded as necessary. Although an expense may be both ordinary and necessary, sometimes one may not be allowed to deduct it in the year paid or incurred. At times it is not allowed to deduct the expense at all.

Like many other business expenses, board meeting expenses fall under the category of necessary business expenses and are thus deductible from taxable income.  However, to be deductible, board meeting expenses must be related to business activities. Some such expenses are travel expenses incurred due to traveling to and from the board meetings, hotel stays, food expenses, supply purchases, compensation for services and many such expenses can be written off business expenditure if you can give proof that the expenses were solely for the business purpose. Tax cannot be deducted from expenses that are made for an official’s personal use and where there is no interest in the company. In the case of phone bills (if there is personal and business usage), then the taxpayer can only deduct the portion of the bill which is used for business.

Keeping a record of the expenses is very essential to write off tax. They also need to be classified properly as travel-related expenses, dining expenses, and entertainment expenses. The company’s accountant must be responsible for identifying, classifying and deducting board expenses. When documents are to be produced to IRS it becomes easy if all the documents are recorded and are in place. The board of directors also needs to determine how to maintain the process of documenting expenses, which includes filling reimbursement forms, keeping a track of receipts and keeping a proper travel log, etc.