Oct 23, 2024
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Business meals: yes or no on deductions? In brief, you cannot take a deduction for any expense related to activities generally considered entertainment, amusement or recreation. However, you can deduct 50% of the cost of business meals if you (or your employee) are present and the food or beverages aren't considered lavish or extravagant, according to the IRS.
The IRS has further advice: If food or beverages are provided during or at an entertainment event, and the food and beverages were purchased separately from the entertainment or the cost of the food and beverages was stated separately from the cost of the entertainment on one or more bills, invoices or receipts, you may be able to deduct the separately stated costs as a meal expense.
When traveling, you can deduct a portion of the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business, according to the IRS.
The fine print
Despite the new guidance, businesses may still find it confusing to figure out what they can deduct and when. As the following paragraphs show, there can be a thin line between what is and is not allowed.
For example, you can probably claim the 50% deduction when taking a client out to a restaurant to talk about their account. You're at a conference away from home? Again, that will probably pass muster. Even when no client is involved, if you provide snack items and meals for your staff in the office, that will also get the 50% deduction.
Can anything get you a 100% deduction? Yes, in a few specific circumstances. The annual holiday party for your employees gets the full deduction, as does a team-building event. However, the IRS may take a dim view of your doing this too frequently.
So is this the full story? No! There are lots of subtleties when deciding what is or is not deductible and at what level. Your best bet is not to make assumptions but instead to speak with a tax professional in advance as you create a budget for your plans.
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