You Have to Eat, Might as Well Deduct It
- Admin
- Nov 27, 2024
- 3 min read
I am sure you have heard that you can deduct meals, but you may not be sure how the deduction works. Lots of people like to throw in travel meals as a separate deduction from regular meals but this is not the case, they are one in the same. For 2022 and 2021, the meals deduction is 100% for ready to eat food/drink served at restaurants. The IRS refers to this as the "enhanced business meal deduction" because the meal deduction has typically been 50% in prior years. In 2023, the meal deduction will return to the 50% value. Lets go into more detail about this deduction.
IRS Rule
The general rule for the meals deduction is that the expense cannot be "lavish or extravagant" and the taxpayer must be present for the meal. Additionally, they define a restaurant as "a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises". Lets start with "lavish or extravagant", since they don't give an exact number for this idea, just remember that pigs get fed and hogs get slaughtered. If you are unsure whether your meal fits into this category, ask your accountant. Lastly, since the food does not have to be consumed on the restaurant's premise, catering is allowed for the meal deduction.
Documentation
The IRS expects the time, place, and business purpose of the meal deduction to be documented for the deduction to be allowed. In the event of an audit, meal deductions that are not substantiated will be disallowed, but the meals with substantiation will be allowed. An easy way to document all of this information is to write the business purpose on the receipt, scan the receipt, and keep it in your records for three years. The three year rule regards the three year lookback period that the IRS has for tax returns to be audited. The general rule of thumb is that if you are going to be audited for a tax return, it will happen within three years of filing the tax return.
Travel Meals
As previously mentioned, travel meals are subject to the same standard as meals within your tax home (see Travel Deduction for more information). If your employees are traveling for business, you may use an accountable plan to reimburse them and claim the deduction for your business ( see Accountable Plan for more information). Lastly, if the meal is not from a restaurant then the meal deduction is reduced to 50% for 2021 and 2022. The IRS defines these are unreimbursed non-entertainment related expenses.
Scenarios:
If you have an office party and purchase food from a restaurant for the party, the meals expense is deductible whether you pick the food up from the restaurant or order catered food.
If your employees are out on site and you want to buy them all lunch, the meal expense is deductible.
If you are meeting with a current/potential client, business partner, or employee for lunch the meal expense is deductible.
If you go out for drinks with a current/potential client, business partner, or employee the meal expense is deductible.
You are at a baseball game and you order some hotdogs with a current/potential client, business partner, or employee the meal expense is deductible for the meal. The baseball game is considered entertainment which is now a disallowed deduction through the TCJA. See Entertainment Deduction for more information.
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