Can I Deduct Business Meals?

December, 21 2022 by Steve Banner, EA, MBA

Yes, you can deduct your business meals – but as we always say, there are conditions that must be met. Under normal circumstances, qualifying business meals are 50% deductible. However, the Consolidated Appropriations Act of 2021 provided a temporary exception to the 50% rule for the 2021 and 2022 tax years. In an effort to help the restaurant industry which had been heavily impacted by the COVID-19 pandemic, the allowable deduction for meals provided by a restaurant in 2021 and 2022 was increased from 50% to 100%.

This now leads us to the question of what conditions must be met for a business meal to qualify for the deduction.
 

What is Deductible?

The costs of meals are generally deductible if those expenses (including taxes and tips) are incurred while you are traveling on business or if the meals were provided to a client, customer, or employee. This includes meals provided to a current or potential business customer, client, consultant, or similar business contact. However, you cannot deduct the cost of food and beverages that are considered lavish or extravagant. The definition of “lavish or extravagant” depends on the facts and circumstances in which the meal was provided. The IRS will not disallow reasonable meal expenses simply because they exceeded a fixed dollar amount or because the meals took place at deluxe restaurants, hotels, or resorts.

The matter of the deduction of the cost of entertainment is beyond the scope of this article, but the costs of food and beverages that are provided during a business-related entertainment event are deductible if:

• they are purchased separately from the entertainment, or
• you have one or more bills, invoices, or receipts that states the food and beverage costs separately from the cost of the entertainment.

What is Not Deductible?

Not all meals that take place in the context of your business operations are deductible. For example, none of the following qualify as deductible business meals:

• A meal you eat alone while working
• Coffee or snacks you consume while working
• Lavish or excessive meals provided to employees at work
• Meals provided to the general public for purely promotional purposes

50% or 100%?

Now that we have reviewed the types of meal expenses that may be deductible, let us look at the rates that apply in each case. As we saw above, the standard portion of eligible business meal expenses that can be deducted is 50%. But for tax years 2021 and 2022, the rate is increased to 100% for business meal expenses that were incurred from a restaurant.

For this purpose, a restaurant is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption, whether it is eaten in-house or purchased for take-out. A business, such as a convenience store or grocery store that mostly sells pre-packaged food or beverages not designed for immediate consumption, does not qualify as a restaurant.

The rules also state that either the owner or an employee of the business claiming the 100% deduction must be present when the food or beverages are provided by the restaurant. In addition, payment or billing for the food and beverages must take place after December 31, 2020, and before January 1, 2023.
 

Keeping Records

The only way for you to make sure that you claim the correct amount of business meal deductions that you’re entitled to is by maintaining complete and accurate records. A logbook, diary or electronic record should be kept on a timely basis to ensure accuracy. These records will also prove to be invaluable in case the IRS ever audits your return or otherwise questions the amount of your expenses.

For example, a restaurant receipt or canceled check on its own does not provide sufficient information to show that the expense was for a legitimate business meal purpose. Items such as these should be accompanied by details such as the name and location of the restaurant, the number and names of people served (including their title), the business benefit gained, a brief summary of the business discussion that took place, and the date and amount of the expense.

To summarize our discussion, you can indeed deduct the expenses related to your business meals and you may be surprised at just how large that deduction turns out to be when you consult your records!