Many small business owners are scared to write off meals as business meals because they don’t understand the tax code’s complexity. However, when utilized correctly, this is a fantastic deduction that every business should be taking advantage of regularly.
We put together this guide with real-world examples so you can understand exactly how and when to deduct meals through your business.
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How to Maintain Records for an Audit
Before we tell you what meals are deductible, it is crucial to understand how you must keep records of your business meals. In the event of an audit, the IRS requires that you maintain adequate records. These records must include:
- A receipt of your meal
- A short written description on the receipt documenting the business purpose of the meal and all parties present
Although the chances of an audit are small, the IRS will disallow all of your business meals if you do not keep these records. Of course, you don’t want that because it will raise your tax liability. Although it may seem tedious, good record-keeping is an important habit to practice.
Are Meals at Restaurants deductible?
In 2022, food and beverage consumed at a restaurant is 100% deductible if the meal is for a valid purpose.
Brad owns a marketing agency and went to a local steakhouse with a client to discuss the client’s planned social media marketing campaign. Brad and his client each ordered appetizers, entrees, desserts, and alcoholic beverages. Is this meal deductible?
Yes, since the primary purpose of the meal was to discuss strategy, the dinner will be 100% deductible. This includes the alcoholic beverages.
Chris and Dan are partners in a law firm and good friends. They went out for lunch and talked about family, sports, and current events. They briefly discussed how much money they expect the firm to make this year. Is this meal deductible?
No, since the primary purpose of this meal was not business, they will not be able to deduct this meal. Being business partners is not enough to qualify as a business meal.
Lori is a financial advisor, and she is trying to woo Fred’s business to be her client. She decides to invite Fred to a fancy dinner at an exclusive restaurant to close the deal. Both Lori and Fred bring their spouses. During the meal, Lori explains to Fred how she can help his business. Is this meal deductible?
Only the cost of Lori and Fred’s meals are deductible since they are the only two participating in a business deduction. The cost of the spouses’ meals are not deductible because they do not contribute to running the businesses.
Is Entertainment Deductible?
In 2022, entertainment is not deductible. Entertainment includes, among other things, concert tickets, sports tickets, and golf. However, all food and beverage consumed during the entertainment is still 100% deductible.
Jerry is a power equipment distributor, and he wants to win the rights to distribute Alex’s products in Texas. So he decides to invite Alex to play a round of golf to discuss why he is the best person to distribute Alex’s products. Is the round of golf deductible?
No, even though the primary purpose of the golf was business, Jerry will not be able to deduct the cost of the rounds.
Erin has been trying to get better prices from her supplier, Mike. She knows that he is a big baseball fan, so she invites him to box seats to try to get lower prices. During the game, both Erin and Mike order food and alcoholic beverages. Is the cost of the game deductible?
The cost of the baseball tickets are not deductible. However, are the food and drinks costs 100% deductible because they were primarily for a business purpose?
Are Office Snacks Deductible?
In 2022, office snacks are 50% deductible if they are not purchased from a restaurant. Snacks purchased from a restaurant are 100% deductible.
Kathryn has a pantry of snacks in her office that her employees can help themselves to throughout the day. She replenishes the stock of snacks weekly from the grocery store. Are these snacks deductible?
The snacks are only 50% deductible since they were not purchased from a restaurant.
Are Office Meals Deductible?
In 2022, meals provided by the employer to all employees in the office are 100% deductible. The key is that the meals must be provided to all employees.
Every Friday, Patrick orders a pizza lunch for all his office employees. Is this deductible?
Yes, since Patrick is providing the meal to all of his employees, it is 100% deductible.
Ted has a super busy schedule today, so he orders delivery to his office. He is performing work while eating his lunch. He does not offer to order lunch for his employees. Is this meal deductible?
No, this meal is not deductible. Although Ted performed work during his lunch, business meals are only deductible when consumed during meetings with clients and employees. The meal would have been deductible if he had ordered lunch for the entire office.
Are Travel Meals Deductible?
Business travel occurs when you travel outside of your tax-home overnight for business. Your tax-home is defined as the city where you primarily reside and do business. In 2022, meals consumed when traveling for business are 100% deductible.
Casey has to fly from Chicago to Houston to meet with a supplier. She will spend one night in Houston, and she consumes three meals while traveling. Are these meals deductible?
Yes, since Casey spent a night away from her tax home and the primary purpose of the travel was for business, she will be able to deduct these meals.
Marco has to drive two hours across town to meet with his client. On the way back from his client, he decides to stop and pick up lunch. Is this meal deductible?
No, this meal is not deductible because it does not qualify as business travel. It is required for Marco to spend at least one night away from his tax home, which he did not. Additionally, just because the meals were consumed during business hours does not mean they are eligible to be deducted.
At Windstone Financial, we specialize in helping small businesses lower their taxes and build wealth. If you think you’re paying too much in taxes, click the button below to speak with a CPA today!