Are Meals Deductible for a Business?

Some of the most frequently asked questions from small business owners is about meals. Are they deductible on a business tax return? How much is deductible? What qualifies as a deductible meal? Although there are always exceptions to the rules, here’s a basic breakdown of business meals from a tax perspective along with best practices.

Travel meals. To be able to deduct a travel meal, you first must be out of town for substantially longer than a normal work day. The IRS considers “out of town” to be outside of your general work area. The travel must be for a business purpose such as visiting a client or attending a trade show or seminar. In addition, the cost of the meal cannot be extravagant. This doesn’t rule out going to a nice restaurant, but be mindful of the tab. If the facts and circumstances can justify a large meal bill, it is usually acceptable. Travel meals can be eaten alone or with another person. They are 50% deductible on your business return.

Meals and entertainment. These two are frequently grouped together, but we’ll focus on the meals part. The first requirement is you cannot be alone. The meal must be with someone you will be conducting business activities with immediately before, during, or immediately after the meal. Also, you must be able to demonstrate that “you had more than a general expectation of getting income or some other specific business benefit at some future time” per the IRS. You do not have to prove, however, that you actually did receive that income or benefit. These types of meals are also 50% deductible on your business return.

Save and annotate your receipts. As with any business expense, save your receipt. You can either keep the paper receipt or store it electronically. The IRS accepts scanned documents as long as they’re readable, not altered, and stored properly. Write on your receipt the details of the meal. Who were you with? What company were they from? What was the general purpose of meeting for the meal? This step will save you a lot of frustration should an inquiry or audit ever get conducted by a tax agency.

More information. This is a brief, high-level article about business meals. For more detailed rules and examples of what types of meals qualify and what meals do not, refer to Publication 463, published by the IRS. This is an extremely informative publication that covers travel, entertainment, gifts, vehicle expenses, and specifics on recordkeeping for these expenses. It’s easy to read and follow.

Visit www.irs.gov. The IRS’ website is full of great information and publications covering all tax topics. If you have any kind of tax question, I would highly recommend visiting their website first and typing your question in the search box.