When can Business Meals be a Tax Deduction

La Jolla BreakfastDid you know that Business MEALS can be 0% or 50% or 100% tax deductible? First, MEALS can be deducted as a business expense only if they are directly related to the business. There must be valid business purpose to the meal for it to be a deductible expense. Also, if a meal is considered “lavish and extravagant”, the extravagance portion is NOT deductible at all. If there is no business function to the meal, it is 100% NOT deductible for tax purposes.
Once “business purpose” test is established, there is another threshold to meet. Is the expense 50% deductible or 100% deductible? Meals are 100% deductible in the following situations:

  • if meals are part of a company event (picnic or holiday party),
  • snacks provided for the employees at the business location,
  • food available to the public for promotional campaigns,
  • if provided for more than half of employees for the convenience of the employer. For example, if employer provides meals to keep the employees working late, weekends or on call,
  • Meals listed as compensation on the employee’s W2 are 100% deductible,
  • Dining invoiced to the client for the actual cost of the meal,
  • And, some meals at charity sporting events.

Other than the above, meals would probably be 50% deductible if there is a direct or indirect business purpose. Consult your tax professional for more specific details.

As such, we recommend that your Accounting records have two accounts for Meals and Entertainment: One for the 50% deductible meals and one for the 100% deductible meals. That way, at year-end, your Tax Professional can easily find the 100% Meals.

In all cases, you must have appropriate documentation (a receipt) to substantiate these expenses. The IRS will disallow expenses that do not have appropriate backup documentation.

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