Writing off Business Meals
When it comes to business deductions, the FIRST question you need to ask yourself is: Is this an ordinary and necessary expense for conducting my business?
But when it comes to business meals, there are a few more facts and circumstances needed to determine whether any deduction is appropriate. This guide is not intended as financial advice, and you should consult with your tax accountant to determine the best course of action for your unique tax situation.
Where’s my 100% deduction?
Do you vaguely remember being able to take a 100% deduction for your meals in the past? You’re not going crazy! There was a temporary 100% deduction for meals from a restaurant after December 31, 2020, and before January 1, 2023, from the Tax Cuts and Jobs Act (TCJA).
Since this 100% deduction has expired, the meal deduction rules have reverted back to previous guidance. But, that doesn’t mean you’ve lost your 100% deduction on all meals! Check out page six to find out which meal expenses may still be fully deductible.
But, let’s get back to the present! Here’s what you need to know in today’s tax world: A lot of business meal expenses are back to being only 50% deductible. Keep reading to find out what falls into this category!
Turning meals into business deals?
You can generally deduct 50% of your meal costs that meet the following criteria:
The expense is an ordinary and necessary part of conducting your trade or business
The expense is not lavish or extravagant
Your business has a presence at the meal (either through you or your employee)
The meal has a clear business purpose
There is proper substantiation (documentation) of the meal
Here are some exceptions to the 50% deduction limit:
Meal expenses that are treated as compensation to an employee
Meal expenses from social activities for employees (like a holiday party or summer BBQ)
Meals provided to the general public as a means of advertising
Your trade/business is selling meals to the public (like a restaurant or food truck)
*These expenses may be fully deductible. Information sourced from IRS Publication 463 (2023).
Per the IRS, if you’re traveling away from your tax home for business for a period of time that is substantially longer than an ordinary day's work (i.e. you would need to sleep or rest to complete your work), your meals may be deductible subject to the 50% limit to the extent that they are not lavish or extravagant.
Does my coffee in the morning count?
Are you meeting with a potential client, existing client, vendor, or employee to discuss business? If not, are you traveling for business away from your tax home? If your answer is no to both of these, your morning coffee probably does not qualify as a business meal. Confirm with your tax accountant for your specific situation!