Are Travel Meals Deductible for Business?

When traveling for work, the cost of meals can be a notable expense. The Internal Revenue Service (IRS) allows for the deduction of these costs, as business travel incurs necessary living expenses. This provision helps offset the financial burden on individuals and businesses when they or their employees must eat on the road. Understanding the rules for this deduction is necessary for accurately calculating and substantiating these expenses.

Defining Business Travel Away From Home

Before deducting meal expenses, you must be in “travel status.” This is determined by the IRS’s “sleep or rest” rule, which requires your work duties to keep you away from your tax home for a period longer than a standard workday, making it necessary to get sleep or rest. A brief nap in a car does not satisfy this rule; the time off must be long enough for proper rest.

Your “tax home” is the entire city or general area of your main place of business, which may not be the same as your family residence. If you lack a regular place of business, your tax home may be where you regularly live. Travel expenses are only deductible for temporary work assignments. Any assignment expected to last more than one year is considered indefinite, and your tax home may shift to that new location.

For example, a consultant who drives to a client’s office for a meeting and returns the same evening is not in travel status. There was no need for sleep or rest. Conversely, a contractor who drives to a job site and stays overnight to continue work the next day is in travel status. This overnight stay makes the cost of their meals during that period potentially deductible.

Rules for Deducting Meal Expenses

Once you establish you are in travel status, you must follow specific rules. The primary rule is the 50% limitation, meaning you can only deduct 50% of the actual cost of a business meal. This applies to meals for yourself while traveling alone or with business contacts, and the cost includes food, beverages, taxes, and tips.

The expenses must also be “ordinary and necessary” and not “lavish or extravagant.” An ordinary expense is common in your trade or business, while a necessary expense is helpful and appropriate. What is considered lavish is not defined by a specific dollar amount but depends on the circumstances. For the meal to be deductible, you or your employee must be present.

An exception to the 50% rule exists for certain transportation workers subject to Department of Transportation (DOT) hours of service limits. This includes certain air transportation workers, interstate truck and bus operators, railroad employees, and merchant mariners, who can deduct 80% of their meal costs instead of the standard 50%.

Methods for Calculating the Deduction

Taxpayers have two methods for calculating their meal deduction: the actual cost method and the standard meal allowance. The choice affects recordkeeping requirements and the total deduction amount. Regardless of the method, the final deductible amount is subject to the 50% limitation.

The actual cost method involves deducting 50% of the amount you spent on meals. This requires you to keep detailed records and receipts for every meal expense you claim. For example, if you spend $150 on meals, you would keep the receipts and could deduct $75. This method is beneficial if your meal costs are higher than the standard rates.

Alternatively, you can use the standard meal allowance, also known as the per diem method for meals and incidental expenses (M&IE). This method allows you to use a set daily amount for your meals and incidentals, which varies by location and is updated annually by the General Services Administration (GSA). An advantage is that you do not need to keep receipts for your actual meal costs.

Required Recordkeeping and Documentation

Properly substantiating travel meal expenses is an IRS requirement, as inadequate records can lead to your deductions being disallowed. For every travel expense, you must record:

• The amount of the expense
• The date it was incurred
• The location of the travel
• The business purpose of the travel or meal

A detailed log or expense report software can help organize this information.

If you use the actual cost method, you must keep receipts, canceled checks, or bills for each expense. While a receipt is not required for most expenses under $75 (except for lodging), you are still required to maintain your records to substantiate the deduction.

When using the standard meal allowance, you are not required to keep meal receipts. However, you are not exempt from all recordkeeping. You must still maintain records that prove the time, place, and business purpose of your travel to justify using the per diem rate. You should keep these records for three years from the date you file your tax return.