Business meals are deductible business expenses, or are they? Business meals fall into three categories for tax purposes: non-deductible, 50% deductible, and 100%. Knowing which category your meal expenses fall into is essential, so let’s look at which type of meal expenses fall into each category.
Non-Deductible Meal Expenses
Entertaining of clients: Back in 2017, meal expenses for entertaining clients (for example, golf outings or sporting events) were 50% deductible. However, since 2018, these meal expenses have no longer been deductible as business expenses.
50% Deductible Meal Expenses
Some of the frequently seen meal expenses that fall in this category include:
- Travel meals for employees
- Client meals, a substantial amount of business must be discussed – minus meal costs for spouses and friends
- Board meeting meals
- Employee meals outside the office (if less than fifty percent of the staff)
- Office meals and snacks
100% Deductible Meal Expenses
Some of the frequently seen meal expenses that fall in this category include:
- Employee meals outside the office (if at least fifty percent of the staff)
- Company-wide holiday party
- Employee meals/food included as taxable W-2 compensation
- Free food given to the public
Important Tax Rules
There are at least two rules related to business meal expenses that need to be known by your business:
- Deductible meals can not be lavish in nature
- Receipt copies –
- Expenditure amount limits: while the IRS has rules on expenditure limits that require proof of receipt, I recommend that my clients obtain and maintain all receipts, irrespective of the meal expense total.
- Required information: The IRS requires that the receipt copies be itemized and include the names of the attendees, the business purpose or discussion topic, and the cost of the meal.
How does this information impact your business operations?
Knowing what is deductible and what is not helps your team, and you make sound daily decisions.
Also, this information shows the importance of accurately accounting for all meal expenses to ensure that your tax accountant can file your taxes correctly. I set up at least three meal expense accounts for my clients, one for each category discussed above: non-deductible, 50% deductible, and 100% deductible. I also upload the accompanying receipt for each meal expense keyed into the accounting software. This ensures that you have proof of the meal expense if your business is audited.
Business meal expenses are a significant business deduction, but it is important to know which expenses are deductible and which are not. If you need help deciphering through and adequately allocating your business’s meal expenses, please give our office a call at (314)-627-2660.
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.
