How to Claim the Self-Employed Meals Deduction
Properly deducting business meals can lower your tax bill. Learn the essential IRS standards and documentation practices for self-employed professionals.
As a self-employed individual, you can deduct a portion of meal expenses that are directly related to the operation of your business. Understanding the specific requirements set by the Internal Revenue Service (IRS) is necessary for correctly claiming this deduction and reducing your taxable income. The rules determine which meals qualify, the percentage of the cost you can deduct, and the records you must maintain to support your claim.
Qualifying for the Deduction
For a meal expense to be deductible, it must be considered “ordinary and necessary” for your trade or business. An ordinary expense is one that is common and accepted in your specific industry. A necessary expense is one that is helpful and appropriate for your business.
The cost of the meal cannot be lavish or extravagant under the circumstances. This is determined by a “facts and circumstances” test. An expensive meal is not automatically disallowed if it is reasonable based on the business context, such as securing a major contract with a client.
A requirement is that you or an employee must be present at the meal. You cannot deduct the cost of meals for clients or customers if you are not there to engage in business discussions. The purpose of the meal must be to conduct business, and your presence is a key indicator of this intent.
Deduction Limits and Special Rules
After a meal is determined to be a qualifying business expense, the deduction is generally limited to 50% of the total cost. This means if you spend $100 on a qualifying business meal with a client, you can only deduct $50. This limitation applies to the cost of food and beverages, as well as any related taxes and tips.
Certain situations have different rules. Meals consumed while traveling for business away from your tax home are also subject to the 50% limit. Your tax home is the entire city or general area where your main place of business is located. To deduct these travel meals, the trip must require you to be away from home overnight.
Some meal expenses may be 100% deductible. These exceptions include costs for company-wide recreational or social events, such as a holiday party or summer picnic for your employees. Meals provided on your business premises for the convenience of the employer can also be fully deductible.
It is important to distinguish meal costs from entertainment expenses. The Tax Cuts and Jobs Act of 2017 eliminated the deduction for most entertainment expenses. If you incur costs for a meal during an entertainment event, the cost of the food and drinks may be 50% deductible if stated separately from the non-deductible entertainment ticket cost on the receipt or invoice.
Required Recordkeeping
The IRS requires specific details for each meal expense to prove its business purpose. You must record the total amount of the expense, including tips and taxes. You also need to document the date of the meal and the name and location of the restaurant or establishment where it took place. Your records must clearly state the business purpose of the meal and the business relationship of the individuals who were present, including their names, titles, and company affiliations.
For any single expense of $75 or more, you are required to keep documentary evidence, which typically means a receipt from the establishment. This receipt should show the vendor’s name, location, the date, and the amount of the expense. It is a best practice to make notes directly on the receipt or in a digital expense log at or near the time of the expense to ensure accuracy.
Claiming the Deduction on Your Tax Return
After calculating the total deductible amount, you will report this figure on your tax return. For self-employed individuals who file a Schedule C (Form 1040), Profit or Loss from Business, you will enter the deductible portion of your meal expenses on the designated line.
The total deductible amount for your business meals is reported in Part II of Schedule C. You will enter the figure on Line 24b, which is labeled “Deductible meals.” You do not report the total cost of the meals, only the portion that is legally deductible.