How Much Can You Write Off for Business Meals?

Business meal deductions can lower a business’s taxable income. Understanding the rules for these deductions helps businesses accurately report expenses and comply with tax regulations. This article explains the criteria for deducting business meals, outlines exceptions, details record-keeping practices, and describes how to report these expenses on tax forms.

Qualifying Business Meal Expenses

For a business meal to be deductible, it must be considered an “ordinary and necessary” expense. This means the expense must be common and accepted in your industry, and helpful and appropriate for your business. The meal cannot be lavish or extravagant. This standard is outlined in Treasury Regulation 1.162-2, which defines ordinary and necessary business expenses.

The taxpayer or an employee must be present at the meal. Business must also be discussed during the meal or directly before or after it. For example, a lunch meeting with a prospective client where project details are discussed would qualify.

Most qualifying business meals are subject to a 50% deduction limit. This limitation applies to meals with clients, customers, or employees during business discussions. For instance, a team lunch during a strategic planning session or a dinner meeting with a vendor to negotiate terms would fall under this 50% rule.

The 50% limitation on business meals was reinstated by the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Before this, for 2021 and 2022, certain qualifying business meals provided by a restaurant were temporarily 100% deductible. However, for 2023 and subsequent years, the general 50% rule applies to most business meals once again, unless a specific exception allows for a higher deduction.

Exceptions to the Standard Deduction Limit

Some business meal expenses can be 100% deductible. Meals provided to employees as taxable compensation are fully deductible by the employer. For example, if an employer includes the value of a meal in an employee’s wages, that meal is deductible for the business.

Meals considered a de minimis fringe benefit are also 100% deductible. These are benefits so small in value that accounting for them would be unreasonable or impracticable. Examples include occasional snacks, coffee, or bottled water provided to employees. The IRS provides guidance on de minimis benefits in Treasury Regulation 1.132-6.

Meals provided for the convenience of the employer on the employer’s business premises are fully deductible. This applies when the meal is provided for a substantial non-compensatory business reason, such as requiring employees to remain on premises during their lunch break.

Certain meals related to employee recreation, social, or similar activities are also 100% deductible. This includes expenses for company picnics or holiday parties. Meals provided to the public for a charitable purpose, such as a fundraising event where meals are included, are also fully deductible. Meals included in entertainment tickets sold to the public can be 100% deductible, though entertainment expenses are generally not deductible.

Meals consumed by employees on qualifying business travel away from home are subject to the 50% deduction limit. However, meals provided to employees of a trucking business or airline during a period of duty subject to the Department of Transportation’s hours of service limitations are deductible at 80%.

Documentation and Record Keeping

Accurate documentation is necessary to substantiate business meal deductions. Businesses must keep records that clearly support the amount, time, place, and business purpose of each meal. This includes maintaining receipts, invoices, or credit card statements for every meal expense.

Beyond financial records, specific information must be recorded for each meal. This includes the exact date and place where the meal occurred. It is also important to note the business purpose of the meal, such as what business topic was discussed.

Identifying the business relationship of the person or persons entertained or with whom the meal was shared is also required. For instance, noting whether the individual was a client, prospective client, vendor, or employee helps establish the business context. This level of detail helps prevent disallowance of the deduction during a tax examination.

Maintaining contemporaneous records is advisable. This means recording the required information at or near the time the expense is incurred. Keeping records consistently simplifies the tax preparation process and provides stronger evidence for the deduction if audited. The IRS outlines these requirements in Publication 463, Travel, Gift, and Car Expenses.

Reporting Business Meal Deductions

Once qualifying business meal expenses have been identified and documented, they must be reported on the appropriate tax form. Sole proprietors report their business meal deductions on Schedule C (Form 1040), Profit or Loss From Business. The total deductible amount, after applying the 50% limit or 100% exceptions, is entered on the line for “meals and entertainment.”

Corporations, including S corporations, report these expenses on Form 1120 or Form 1120-S. Partnerships report their deductions on Form 1065. The deductible meal expenses are included with other deductible expenses on the relevant expense lines of these forms.

For employees who incur unreimbursed business meal expenses, claiming a deduction is now rare. Most employee business expenses, including unreimbursed meals, are no longer deductible as miscellaneous itemized deductions. However, if an employee is reimbursed under an accountable plan, the employer deducts the expense.

The reported deduction reduces the business’s taxable income, impacting the amount of income tax owed. Properly reporting these expenses ensures compliance with tax laws while maximizing legitimate deductions.