The tax deduction for buying meals might be among the nicest that are available to businessowners and self-employed taxpayers. What can be better than claiming a tax break for a steak and baked potato? But the Internal Revenue Service imposes some strict rules regarding meal tax deductions.
Deducting Business Meals
You can deduct the cost of meals as long as they're directly related to your business. You can normally only deduct 50 percent of the cost, and you can’t deduct those that would be considered extravagant, but this changes for the 2021 and 2022 tax years. The IRS and the Treasury Department have increased this limit to 100 percent from Jan. 1, 2021 through Dec. 31, 2022.
This rule becomes a little confusing, however, if your meal is part of a dinner show or other entertainment. The IRS updated its guidance on meal deductions under the Tax Cuts and Jobs Act to indicate that they must be separated out from expenses that are considered to be entertainment. Costs associated with the “show” part of the evening can’t be deducted if you take your clients to dinner and a show. You can only deduct the actual cost of the meal.
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Who Can Deduct Meals?
Meal expenses can be deducted only by self-employed individuals and business owners. Employees can submit meal receipts to their supervisors for reimbursement, but you generally can’t claim them as a deduction on your tax return if you’re working for someone else.
There are some exceptions to this rule, however. Armed Forces reservists, qualified performing artists, fee-based state or local government officials and employees with impairment-related work expenses may still be able to claim unreimbursed employee expenses on their tax returns. You must complete IRS Form 2106 to take advantage of this rule if you fall into any of these four categories. And it's a bit complicated, so you might want to consult with a tax professional.
When Can You Deduct Meals?
Self-employed persons and businessowners can claim deductions for meals that are related to travel. You can claim 50 percent or 100 percent of the cost of your meals, depending on the tax year, if you must remain away from home for an extended period of time in order to conduct business. The IRS indicates that your business trip must be "overnight or long enough that you need to stop for substantial sleep or rest to properly perform your duties."
Again, the meals can't be extravagant, and you can’t include the cost of any associated entertainment.
You can also claim the cost of meals when you're traveling if they're related to meeting with a client for business purposes. You or at least one of your employees be present at the meal and you (or they) must have discussed business with your guest or guests. You hope to derive income from the meeting.
You can't claim meals with co-workers or employees, however, even if you discuss business. You can’t claim the cost of meals you ordered in to munch at your desk while working late.
How to Deduct Meals
You can deduct meals in one of two ways: the actual cost method or using the standard meal allowance. You might want to compare each method to determine which results in the greater deduction per meal/event. You must have what the IRS calls a “reasonable basis” for calculating the amount you’re claiming for the meal.
The actual cost method involves tallying up the cost of each meal, then dividing it in half for years when the 50 percent rule applies. You can deduct that figure (per meal) or 100 percent of the entire cost for meals enjoyed in 2021 and 2022. Keep substantiating records of the cost, such as receipts, for three years in case the IRS questions your deduction.
The U.S. General Services Administration sets per diem rates for each area of the U.S if you want to claim the standard meal allowance instead. Check these rates for the appropriate time period and claim that as your daily cost. The first and last days of travel are considered partial days, so you’ll claim a reduced amount on those two days.
Separating Meal Costs
Only your own meals are deductible as travel expenses. And you’ll have to figure out what percentage of the tab was for food if you’re staying at a hotel or attending an event where the cost of your food is included in the price.
You can claim associated meals as a business expense if an employee or coworker must travel with you, but you must be able to demonstrate that they had a legitimate business-related reason for making the trip. As for a spouse, friend or someone else who's coming along to spend time with you when you're not working, you won't be able to deduct their expenses. Get a separate receipt for their meals if possible.
The entire meal is tax-deductible if you're meeting with a customer or client, assuming you're dining with just your client or customer and perhaps an employee. The cost of meals for spouses or anyone else who tags along for fun aren't tax deductible.
Buying Meals for Employees
Businessowners can also deduct the cost when they buy food on-site for staff. The meals must be provided on the employer’s premises and for the convenience of the employer. This can include cafeterias or delis furnished by the employer, as well as food you buy for meetings.
The convenience portion of the requirements means that there's a business reason for furnishing the meals. You're not feeding your employees as additional compensation to them. Maybe you’re working hard on a project and you want everyone to stay on-site rather than leave to grab a meal.
The meal deduction can be complicated, but you can enjoy the tax break if you meet the rules. Retain receipts and make notes to yourself as to the purpose of each meal.
- IRS: Publication 463 Travel, Gift, and Car Expenses
- IRS: IRS Issues Final Regulations on the Deduction for Meals and Entertainment
- IRS: Publication 529 (12/2020), Miscellaneous Deductions
- IRS: Frequently Asked Questions / Income & Expenses 2
- IRS: How Long Should I Keep Records?
- GSA.gov: Per Diem Rates
- IRS: Treasury, IRS Provide Guidance on Tax Relief for Food or Beverages From Restaurants
- IRS: Form 2106 Employee Business Expenses
- Moss Adams: Tax Reform Limits Deductions on Meals and Snacks Provided to Employees
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.