If you receive 1099-MISC forms at tax time, it means you’re self-employed or an unincorporated independent contractor. Someone paid you for goods or services and you have to claim the income reported on each 1099 on your tax return. But there’s a silver lining: You don’t have to pay taxes on the full amount. You must file Schedule C with your return, and this extra form allows you to deduct your costs of doing business, including some meal and entertainment expenses. There’s no cap to how much you can deduct overall, but this doesn’t mean you can deduct 100 percent of each expense.
Generally speaking, up to 50% of meals purchased for business purposes can be deducted on your tax return. Accountability is a must, however, and you will likely need to have receipts handy for documenting these expenses.
The Internal Revenue Service says you can deduct food costs that are directly related to doing business, such as if you’re serving refreshments at your art gallery opening. You can also deduct costs associated with your business, such as if you meet with a client over dinner and pick up the tab. The costs must be reasonable. While a prime rib dinner is usually OK, serving champagne worth $1,000 a bottle at your gallery opening might raise eyebrows at the IRS.
The 50-Percent Rule
In most cases, you can only deduct 50 percent of what you spend on each meal expense. Buying dinner for a client or prospective client falls into this category, as does the cost of food provided at your place of business or another meeting place. You can deduct the cost of your own meals if you’re traveling for business purposes, subject to the 50-percent rule.
You're allowed to use either the actual costs you incurred, in which case you should save your receipts, or the standard daily meals and incidental expenses rate that government employees get while they're traveling to wherever place your business travel took you. You are required to use the same method for the entire tax year, not pick and choose for each business trip.
And under the tax law that goes into effect starting in 2018, you can no longer deduct the cost of entertaining clients by taking them, say, for a golf outing or to a baseball game, though meals themselves are still deductible through the 50 percent rule.
100 Percent Deductible Expenses
Under some circumstances, the IRS allows you to deduct 100 percent of food costs. If you throw a holiday party, the expense is 100 percent deductible as long as your employees are invited; the party can’t be just for clients and business partners. If you call for takeout because something occurs that requires your employees to stay on the job well past the end of their shifts, this was until 2018 an exception to the 50-percent rule; you could deduct the entire tab. Now, that's limited to 50 percent, and the deduction is slated to go away altogether come the 2025 tax year.
As anyone who pays taxes knows, the IRS often offers exceptions to the rules. This holds true for meals and entertainment deductions. If you’re not traveling for business purposes and you’re not meeting with a client, you can’t deduct the cost of your own meals. The IRS says what you spend on your own food is a personal expense. This is the case even if you have to drive to pick up supplies and you decide to grab a burger on the way. Yes, you’re dealing with business, but you’re still on your home turf – not technically traveling. The IRS makes a kinder exception for independent and self-employed interstate truckers. If you’re subject to Department of Transportation rules and limitations, you can deduct 80 percent – not 50 percent – of your meals while you’re on the road.
- Internal Revenue Service: Topic 512 -- Business Entertainment Expenses
- Nolo: Deducting Meal Expenses for Business Travel
- Nolo: When Do You Need to File Form 1099-MISC?
- Marketwatch: The Party’s Over! Businesses Can’t write off Entertainment Expenses Under New Tax Law
- Baker Tilly: Meals and Entertainment Expenses for 2018
- Hertzbach: Meals and Entertainment Changes Under Tax Reform
- Landstar: Truck Driver’s Per Diem for 2018
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.