Business Meal Deductions: What You Need to Know
Do you frequently take clients out for a meal? Are you regularly eating out at restaurants as part of your job? Do you provide snacks, coffee, or meals for your employees?
If you answered “yes” to any of these questions, you may qualify for business meal deductions!
As a business, you are entitled to meal deductions if you meet certain criteria. It is important to understand the criteria for these deductions to ensure that you can benefit from them when you file your taxes. If you are looking to save the most you can during the filing process, it is a good idea to understand these requirements.
Criteria for a Business Meal Deduction
To be considered a business meal, the following conditions must be met:
🍽 The owner or an employee must be present
🍽 It can’t be extravagant
🍽 The meal must be ordinary & necessary
🍽 It must be with a business contact – this could be an employee, current or potential client, consultant, vendor, referral source, etc.
Meals that meet the criteria above are eligible for 50% deduction. For example, if you spend $56.32 on a meal with a potential client, $28.16 can be noted as a business expense.
Financial Tip: Don’t worry about splitting every transaction when detailing your business meal expenses. This can be taken care of at year end when you’re filing your taxes.
Travel Meals
Do you travel for work? It is assumed that you will need to eat while you are traveling, especially if it is longer than a few hours. Therefore, you could be eligible for business travel deductions related to your meals at the same rate of 50%.
The criteria for travel meal deductions depends on factors such as if you are reimbursed, travel stipends that exist, and more. It is best to talk to your CPA or us to best understand your eligibility.
Office Snacks & Beverage Deductions
Some businesses choose to provide snacks, coffee, or other beverages as a benefit to their employees. This can be a particularly convenient work benefit for employees who work long hours, have demanding jobs, or even when you want to demonstrate your appreciation.
Because you are providing food or beverages related to their work environment, you are also eligible for a 50% tax deduction on these items. Make sure to keep your receipts and track your expenses for any food, drinks, paper goods, etc.
Business Meal Deduction Exceptions
There are some exceptions to this 50% rule. Below are some examples of meals that are always 100% deductible.
🥂 Meals & food provided free of charge to the public
🥂 Company wide parties, such as a holiday party or a picnic
🥂 Meal costs that are reported on an employee’s W-2 (very unlikely)
Business Meals You Cannot Use as a Tax Deduction
Unfortunately, not all business meals can be used as a tax deduction. Specifically, when a business owner or employee is working alone and not sharing the meal with another employee, vendor, client, etc., this meal can not be used as a deduction.
Similarly, if a business owner is dining alone and not working, they cannot use that meal expense towards a deduction.
However, if a business owner is traveling (even traveling alone) related to work or a work opportunity, their meals are eligible for the tax deduction at 50%.
A Note About Entertainment Expense Tax Deductions
We all love to be entertained and sometimes, this can mix nicely with business goals or efforts. Whether you’re working to land a deal or honoring an accomplishment of your business or an individual, entertainment can be appropriately part of your business.
However, most entertainment is not tax deductible. If you arrange an event where there is entertainment and food, it is important that those expenses are kept separated. While the food and meal cost can be used as a tax deduction, the entertainment most often can not be included.
For example, pretend that you decide to treat a client to a baseball game. In this instance, the tickets to the game are not eligible for a tax deductible. However, if you purchase yourself and your client a hot dog, that cost is considered a business meal.
Meals as Gifts
You may be wondering, what about restaurant gift cards that you gift to employees or clients? What about deliveries of food that you send as a thank you or welcoming gift? Even though these “meals” or future meals are purchased from a restaurant, they do not qualify under a business meal. Instead, they are considered gifts and are therefore subject to gift tax laws.
Final Takeaway on Business Meal Deductions
We know how tempting it can be to consider all meals that you dine and consume during your work day eligible for a tax deduction. However, it’s important to follow the rules for business meal deductions to ensure you are not committing business fraud.
As always, we recommend that you keep your receipts for any and all business related expenses. Furthermore, after a business meal, take a moment to jot down a quick note on the receipt of who was present at the meal, and what business topics were discussed. This will make tax season much easier!
Want to learn more helpful tax tips? Check out these posts!
- What to Expect When Your Hire a Bookkeeper
- Should I Hire a Bookkeeper or an Accountant?
- Finances Basics for Business Owners
The content in this blog post is provided for general informational purposes only and should not be considered professional tax or legal advice. The author is not a Certified Public Accountant, and no assurances can be made regarding the outcomes or consequences of tax returns, IRS actions, or any financial decisions based on this information. Readers are strongly advised to consult with a qualified tax professional or legal advisor for personalized guidance specific to their individual circumstances. The author expressly disclaims any liability for decisions made based on the information presented in this blog post.
