There are several specific rules to determine if a meal is a legitimate business expense. These specific rules include meeting the business purpose requirement and the ordinary and necessary requirement. The information that follows assumes that the meal has met these requirements and is a business expense.
SEE ALSO IRS PUBLICATION 463
*General Rule - Meals are generally 50% deductible.
This means that when a business pays for a meal, only 50% of that amount is deducted on the tax return. It’s extremely important to know the exceptions to this rule because some meals are 100% deductible!
Meals that are 50% deductible include:
Meals with clients, customers and vendors
Meals with employees
Meals with partners, shareholders and directors
Meals during business travel
Meals while attending a business seminar or convention
**Exception to the Rule - Meals that are possibly 100% deductible include:
Meals for the business holiday party or company picnic.
Office snacks provided to employees at the office. This may include coffee, soda, water, and similar snacks.
Meals made available to the public. For example, free hors d'oeuvres at an open house or grand opening.
Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer. An example of this is when a business provides meals to employees in order to keep them working weekends or working later than usual. This is for the employer’s convenience to keep the employees at the office.
Meals for which the business is reimbursed for the expense. For example, if a business takes a client to lunch and then bills the client for that lunch in a separate line item on the invoice, then the business can fully deduct that meal. If the meal expense is not specifically itemized on the invoice, then the meal is only 50% deductible to the business and 100% deductible to the client.
*Important Tip: It’s best to capture this information as it occurs. You can do this by setting up two meal expense accounts in your books:
Meals – 50% deductible
Meals – 100% deductible
** The above information is provided in "general" terms. There is no assurance expressed or implied. There is no guarantee of the accuracy or timeliness of the information presented. There is no warranty expressed or implied. This information SHOULD NOT be used as a substitute for professional advice. Each taxpayer should consult with their professional advisor who has knowledge of all relevant and pertinent information related to their particular situation. This information does not constitute "substantial authority".
*** IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.