Being able to write off the cost of food and drink while traveling or meeting with clients is a huge perk for business owners. You should be careful, though, because the IRS rules related to meal deductions are complicated. Meals purchased while traveling or to entertain clients are generally 50 percent deductible, while food purchased for the benefit of employees can be fully deductible.
Meals While Traveling
If you’re traveling for business, your travel expenses are partially deductible. While you can deduct 100 percent of your lodging and mileage expenses, you can only deduct 50 percent of the meals you purchase. You may include the entire cost of the bill when you calculate the expense, including food, beverages, sales tax, and gratuity.
Business owners can only take this deduction if they are truly out of town. In the eyes of the IRS, that means you’re outside or general area where your work is located. To qualify as a business trip, the period of time must be substantially longer than a day’s work and you need to rest or sleep while away. So unless it’s exceptionally long, a day trip doesn’t qualify.
Before you deduct the expense, make sure that there’s a legitimate business activity connected to the trip. Traveling for a conference, seminar, trade show, continuing education, or to visit a customer or potential client are all valid business activities.
Meals as a Form of Entertainment
As long as there’s a business connection, meals can be considered a deductible form of entertainment. You need another person to make this one work — there’s no deduction allowed if it’s just you. However, you may write off the cost of your meal when you’re purchasing it along with a meal for a current customer, potential client, or employee. To write it off, there must be some substantial business discussion before, during, or directly after the meal. If you expect to get some income or business benefit from providing the meal, it also qualifies as a deduction. As with travel-related meals, you can only deduct 50 percent of meals as entertainment expense.
100 Percent Deductible Meals
If you have employees, some of your meal expenses are 100 percent deductible. For example, the IRS allows businesses to fully deduct occasional small snacks and meals that are purchased for the benefit of employees. Doughnuts and coffee purchased for an office meeting are a perfect example. Lunches and dinners brought in to facilitate working through lunch or working late also count. The cost of food and drink involved in hosting a companywide event – like an annual picnic or a summer outing – are also deductible.
Tax guidelines and requirements for meal deductions are surprisingly complex. Luckily, there are helpful resources available to help you sort through it. IRS Publication 463 has all the information you need but can be time-consuming to navigate. Grant Thornton maintains a 9-page guide [PDF] detailing specific requirements. And accounting firm Barnes Dennig created a quick reference guide [PDF] to categorize common meal expenses.