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Meal Deduction for Business Owners and Entrepreneurs

Regular meals at work for yourself are generally not deductible. This is why it is important for business owners to have an accountable plan in place. Meals are generally 50% deductible while traveling for business or if provided to a client, customer or employee. Deduction for meals that are had locally is calculated using actual costs while deduction for out-of-town meals uses standard meal allowance or the actual costs.

50% Limitations

A deduction for meals is generally limited to 50% of the expense, including delivery fees, taxes, and tips. Taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary expense under IRC code 162(a) paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. For example, if you take out a potential client to a basketball game, you’d be able to deduct the cost of the food but not the cost of the tickets to the game.

In order to substantiate, the IRS requires that you have a receipt and write on it who you took out and why. The receipt must show the amount of the expense, time and place of travel, business purpose and the relationship between taxpayer and persons provided meals. For record keeping expense category, meals while traveling are categorized to travel expenses and if deducting meals with current or prospective customers; other expenses category.

This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.