Tax Explainer: How to Deduct Business Meals
Angie M Grainger
The rules for deducting business meals are often changing and can sometimes be confusing.
Business owners are allowed to deduct business meals but it can depend on a few factors.
Here are some things you need to know in order to best leverage your tax deductions for business meals.
Deducting Business Meals:
Reasonable and Ordinary: The expenses claimed must be reasonable and ordinary for your business. Extravagant or lavish expenses might not be fully deductible.
Business-Related Meals: To qualify for a deduction, the meal must have a clear and substantial business purpose.
Document Everything: Accurate record-keeping is crucial. Save receipts and document pertinent information, including the names of attendees, their relationship to your business, the purpose of the meal, and the date and location.
50% Rule: Generally, the IRS allows a 50% deduction on qualifying meal expenses. Be meticulous in differentiating between meal costs and entertainment expenses, as entertainment expenses are not currently deductible.
100% Deductions: There are instances where meals can be fully deductible:
Employee Meals: Meals provided for the convenience of the employer, such as office snacks or meals provided for employees working overtime, can be 100% deductible.
Company-Sponsored Events: Meals provided at events open to the general public, such as promotional events or seminars, can be fully deductible.
Recreational Activities: Meals provided during recreational or social activities primarily for the benefit of employees (such as a holiday party) can also qualify for 100% deduction.
Deducting Travel Meals:
When You CAN Deduct Travel Meals:
Overnight Travel: Meals during overnight business trips are generally deductible. If you're required to be away from your tax home for a substantial period, whether domestic or international, you can typically deduct the cost of meals.
Business Destination: Meals consumed in a location that's far enough from your tax home to necessitate rest or sleep are usually considered eligible for deduction.
When You CAN'T Deduct Travel Meals:
Non-Business Travel: Meals during personal or non-business-related travel are not deductible. If a trip combines business and personal activities, only expenses directly related to business are eligible for deduction.
Local Commuting: Meals incurred during regular commuting or local business activities in your tax home area are generally not deductible. The IRS considers these as nondeductible personal expenses.