Understanding the IRS rules regarding business meal deductions can be tricky. The 2017 Tax Cuts and Jobs Act changed some rules, but not for business meals themselves.
Table of contents
Deductible vs. Non-Deductible Expenses
Deductible: Business meals are generally 50% deductible if they meet specific criteria. This includes meals during business travel or when discussing business with clients or colleagues.
Non-Deductible: Client entertainment expenses, like concert tickets, are not deductible.
Key Considerations for Deducting Business Lunches
- Business Purpose: The meal must have a clear business purpose.
- Directly Related: Business must be discussed during or directly before/after the meal.
- Reasonable: Expenses must be reasonable and not extravagant.
- Tax and Tips: The cost of the meal can include taxes and tips.
- Transportation: The cost of transportation to/from the meal is not included in the meal’s cost.
Business Travel Exception
When traveling for business, meals are deductible. This includes meals at the airport or room service.
Documentation is Key
Proper documentation is crucial for substantiating business meal deductions. Keep detailed records of who attended, the business discussed, and the cost of the meal.
Examples of Deductible and Non-Deductible Scenarios
Deductible Scenarios:
- Meeting with a Client: Taking a client to lunch to discuss a potential project and solidify a business relationship.
- Team Lunch During a Project: Ordering lunch for your team while working late to meet a critical project deadline.
- Business Trip Meal: Having dinner while traveling out of town for a conference or meeting with suppliers.
Non-Deductible Scenarios:
- Daily Lunch at Your Desk: Eating lunch alone at your desk, even if you’re thinking about work.
- Social Gathering with Colleagues: Going out for a casual lunch with colleagues without a specific business agenda.
- Client Entertainment Without Business Discussion: Taking a client to a sporting event without discussing business matters.
How to Properly Document Business Meals
The IRS requires specific documentation to support your business meal deductions. This includes:
- Date and Location: Record the date and location of the meal.
- Attendees and Relationship: Note the names of all attendees and their business relationship to you.
- Business Purpose: Clearly state the business purpose of the meal (e.g., “Discussed upcoming marketing campaign with potential client”).
- Amount Spent: Keep the receipt and record the total amount spent, including tax and tip.
Record-Keeping Tips
- Use a Separate Expense Account: Designate a separate account for business expenses to make tracking easier.
- Utilize Accounting Software: Consider using accounting software like QuickBooks or Xero to manage and categorize expenses.
- Scan and Store Receipts: Scan receipts and store them digitally to prevent loss and facilitate record-keeping.
Navigating business meal deductions requires careful attention to IRS rules and meticulous record-keeping. While you can write off 50% of eligible business meals, ensure you meet the necessary criteria and maintain proper documentation to avoid potential issues during tax audits. When in doubt, consult with a tax professional for personalized guidance.
