Not All Meals Are Deductible
I have heard several clients say, “It’s a write off!” when talking about a meal receipt. Unfortunately, that is not necessarily true. The IRS has a few rules and regulations around business meals all business owners should be aware of before being too quick to add it to your statement.
In short, not all meals are deductible, and most are only a 50% write off.
IRS Rules for Business Meals
https://www.irs.gov/publications/p463
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.
You can't deduct expenses for meals that are lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won't be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.
You may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.
Business Meals Cheat Sheet
Sound confusing? Don’t worry. Here is a simple business meals cheat sheet.
50% Deductible
Business meals with clients.
Office snacks & other food items.
Business meals while traveling for business.
Meals that include less than half of the company employees.
100% Deductible
Food & Beverages – Company Party
Food & Beverages – Free to the Public
Dinner – Employees working late
Examples
If you’re stopping at Starbucks© for coffee while you run business errands, that is not deductible. BUT if you buy a cup of coffee while meeting with a current or prospective client, then that is deductible.
Stopping by McDonalds© for a quick lunch probably isn't ordinary or necessary for your trade or business. BUT if you take a client to lunch at McDonalds© or are speaking to someone to benefit your business then that is deductible.
If you take your family out to dinner and casually mention the business, that is not deductible. If your family is a part of your business and you use the meal to discuss the business, that is deductible.
If you bring a friend to lunch with a client, then the friend’s lunch is not deductible.
Best Practice
Always write on the info back of the receipt. Note names and title of who was in attendance & general topics discussed. You should also include the business relationship of all parties in attendance. Not only will this help you bookkeeper know how to properly categorize the transaction, this should also cover you in the event of an audit.
