Are Meals While Traveling Deductible?

The Internal Revenue Service (IRS) provides specific guidelines for deducting meal expenses incurred while traveling for business. This article explores the criteria and requirements for claiming these costs.

Understanding Business Travel for Meal Deductions

For meal expenses to be deductible, they must be incurred while an individual is “away from home” on business. Your “tax home” is the entire city or general area where your main place of business or work is located. If you do not have a regular or main place of business due to the nature of your work, your tax home may be where you regularly live.

You are considered “away from home” if your duties require you to be away from your tax home for a period substantially longer than an ordinary workday, necessitating sleep or rest (often called the “overnight rule”). For example, a short trip across town that does not require an overnight stay would not qualify for meal deductions.

The distinction between temporary and indefinite assignments also impacts deductibility. If your assignment away from your tax home is temporary, generally lasting one year or less, your travel expenses, including meals, may be deductible. Conversely, if an assignment is indefinite, meaning it is expected to last for more than one year or is open-ended, the new location effectively becomes your new tax home. In such cases, expenses incurred at the new location, including meals, are not deductible because you are no longer considered “away from home.”

If an assignment initially temporary becomes indefinite, your ability to deduct travel expenses changes. IRS Publication 463 emphasizes that the duration and nature of the assignment determine whether a location is considered a temporary work location or a new tax home.

Who Can Deduct Meal Expenses

The eligibility to deduct business meal expenses during travel varies significantly depending on the taxpayer’s employment status. Self-employed individuals, including sole proprietors, partners, and LLC members, generally have more latitude in claiming these deductions.

These self-employed individuals can deduct ordinary and necessary business meal expenses incurred while traveling away from their tax home. An expense is “ordinary” if it is common and accepted in your trade or business, and “necessary” if it is helpful and appropriate for your business. The meal must be directly related to or associated with the active conduct of their trade or business to qualify.

For employees, the landscape for deducting unreimbursed business meal expenses changed substantially with the Tax Cuts and Jobs Act (TCJA) of 2017. This legislation, effective for tax years 2018 through 2025, suspended miscellaneous itemized deductions that were subject to the 2% adjusted gross income (AGI) limit. This change means that most employees who receive a Form W-2 from their employer cannot deduct unreimbursed business meal expenses, even if incurred while traveling away from home.

There are limited exceptions where employees might still benefit from meal-related expenses. If an employer reimburses an employee for meal expenses under an “accountable plan,” the reimbursements are not included in the employee’s gross income and are not subject to income tax withholding. An accountable plan requires employees to substantiate expenses, have a business connection for the expense, and return any excess reimbursement. Similarly, if an employer provides meals directly to an employee as a de minimis fringe benefit or for the employer’s convenience on the employer’s premises, these meals are excludable from the employee’s income and are not deductible by the employee.

Applying Meal Expense Limitations

When meal expenses are deductible, a specific limitation applies to the amount that can be claimed. The general rule is that only 50% of the cost of business meals is deductible. This limitation applies to meals consumed while traveling away from home on business, regardless of whether the meal is for the taxpayer alone or includes business associates. For example, if a qualifying business meal costs $100, only $50 of that expense can be deducted. This 50% rule is outlined in Internal Revenue Code Section 274.

This 50% limitation applies to the total cost of the meal, which includes the cost of food, beverages, tips, and any related taxes. It does not apply to expenses considered extravagant or lavish.

Certain situations allow for a full 100% deduction for meal expenses, as specific exceptions to the 50% rule. For instance, meals provided as a de minimis fringe benefit, such as occasional snacks or coffee provided to employees, may be 100% deductible by the employer. Meals provided for the convenience of the employer on the employer’s business premises, like meals provided at a company cafeteria, also fall under this exception. Another exception applies to meals included as taxable compensation to the employee or provided to the public as part of a recreational or entertainment event.

It is important to distinguish between meal expenses and entertainment expenses. While meals provided during business travel remain subject to deduction rules, entertainment expenses are not deductible. This means that costs associated with entertaining clients, such as tickets to sporting events or concerts, are not deductible, even if a meal is consumed during the event. The focus for meal deductibility remains on the food and beverages consumed in a business travel context, not on the associated entertainment.

Maintaining Proper Records for Meal Deductions

Accurate record-keeping is important for substantiating meal deductions claimed for business travel. The Internal Revenue Service requires specific information to be documented for each expense. This includes the amount of the expense, the time and place the meal occurred, the business purpose of the meal, and the business relationship of the persons involved if the meal included others.

To meet these substantiation requirements, taxpayers should retain various types of records. Receipts are the most direct form of documentation, detailing the vendor, date, and amount of the transaction. Credit card statements can corroborate expenses, but they lack the detailed information about the business purpose or attendees found on a receipt. Comprehensive expense reports, especially those generated contemporaneously, consolidate all the required information in an organized manner.

It is best practice to record the necessary details at or near the time the expense is incurred. This contemporaneous record-keeping helps ensure accuracy and completeness, making it easier to recall specific details about the business purpose and attendees. For example, jotting down the business discussion points and the names of individuals present immediately after a business meal can prevent issues during an audit.

Maintaining an organized system for these records is also advisable. This could involve physical folders for paper receipts or digital systems for scanned documents and electronic records.

The IRS requires taxpayers to keep records that support income, deductions, and credits shown on a tax return for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. Record-keeping facilitates accurate tax reporting and provides a defense in the event of an IRS inquiry or audit.