When it comes to tax deductible meals, business owners aren’t always clear on the IRS rules. One can be surprised to learn that only 50% of the cost of meals are deductible on their tax return and that it can only be deducted in certain cases. There is also the question of how much of meals is deductible if traveling on business away from home.
What Qualifies as a Tax Deductible Meal?
For business purposes a tax deductible meal is one in which you (the owner) or an employee is present and you are paying for the meal with a client, potential client, business consultant or other business contact like them. It is not considered a deductible meal if you eat out or have coffee alone or with friends or family members. Neither is it deductible if business associates meet regularly and take turns paying for the meal and it is mainly for personal reasons. As you can see, there needs to be a genuine purpose for the meal directly connected to your business.
A deductible meal is also one in which you are on a trip for business for more than one day. You may be with someone else or you may be alone. Either way it counts since you are away on business and cannot go home for a meal.
Another situation where meals are deductible is if the cost of meals are included in the amounts you pay for educational expenses such as when you attend training where food is provided. For example, you attend an all day seminar and the tuition charged includes your meals for the day.
Due to the Tax Cuts and Jobs Act, as of 2018, entertainment expenses are no longer deductible on your tax return. But, if you purchase food on a separate receipt from the entertainment while there, the food is.
How Much of the Cost of Meals is Deductible?
50% of the cost of business related meals including tax and tip.
50% of the cost of meals while on a business trip.
100% of meals provided for employees on occasion including snacks. So are meals brought in for the purpose of working through lunch or dinner and company events like picnics.
100% of food provided to the public as part of advertising.
There are a number of special situations that might apply to your business. The IRS Publication 463 on this subject is quite lengthy and includes Travel, Gift and Car expenses as well. It includes some examples that are helpful when the wording isn’t quite clear. If deductible meals are a considerable part of your business, I recommend reading it or speaking with your CPA who can help you decide how to make the best use of it and to clear up any confusion.