What Are Business Meal Expense Deductions?
Business meals are deductible business expenses, and most meals are deductible at 50% of the cost. But entertainment expenses are not deductible as a business tax expense. There was a temporary exception to the 50% limit on deductions for food or beverages from Jan. 1, 2021 through Dec. 31, 2022, Your business could deduct business meals at restaurants and bars at 100% during this time. The facility must have prepared and sold food or beverages to retail customers for dining in or take-out, and the business owner or an employee had to be present. This increased deduction couldn’t be taken for grocery stores and convenience stores. or at employer-operated eating facilities.
Qualifying for Meal Expense Deductions
Your business can generally deduct the cost of business meals at 50% beginning in 2023 or for tax years prior to 2021 if:
The business owner or employee is present.The cost of the meal or beverages isn’t “lavish or extravagant.“The meal is with a business contact (such as a customer, employee, vendor, or consultant).The meal has an “ordinary and necessary” business purpose.
Entertainment is not deductible, so you can only deduct meal costs at entertainment events if the cost can be separated, like a catered meal delivered to a skybox at a sporting event and invoiced separately.
Meals Deductible at 100%
Some meal and entertainment expenses can be fully deducted. Your deduction doesn’t have to be limited to 50% on these activities:
An event to promote goodwill in the community, like sponsoring a community event (considered to be advertising or marketing) An event at which the proceeds go to a charitable organization (check to be sure the charity meets Internal Revenue Service (IRS) qualifications) The meal is an essential part of your business function, (such as if you’re a restaurant critic, food blogger, or sports reporter)
Meal Expenses You Can’t Deduct
You may not deduct the cost of meals for personal reasons, even while traveling. But most expenses will be considered business expenses if the trip is “primarily” business. Only those costs directly related to the business you conduct may be deductible if the trip is “primarily” personal and you conduct just minimal business.
Deducting Some Business Meals for Employees
Your business can deduct the cost of meals for employees while traveling and for meals with clients or customers at 50%, but you can take a 100% deduction for some meals provided to employees, including:
Meals with value that you include in an employee’s wagesMeals as part of social events, such as a holiday party or an annual picnicMeals for employees at your location, such as your company’s cafeteria or break room
Meals for Employees As Fringe Benefits
Some meals you give to your employees are considered benefits, so they’re taxable to the employees. You must report these benefits on their W-2 forms. Some of these meal benefits must be included in the wages of key employees or highly compensated employees (5% share owners or individuals paid more than $125,000) unless the benefits are available to all employees or a group of employees that doesn’t favor the highly compensated individuals.
De Minimis Rules
You don’t have to include the cost of meals to employees if these costs are small or “de minimis” in tax terminology. This would be the case with coffee and donuts provided at a meeting or an occasional meal for an employee who is working overtime. The de minimis rule also applies for employee meals at your company cafeteria if the annual revenue of the facility is equal to or greater than the costs.
Other Meals for Employees
Employees aren’t taxed on the value of meals your company furnishes at your business location and for your business convenience. For example, the meal cost may not be taxable to them if you give meals at your cafeteria to employees who must be available for emergency calls.
How To Take Meal Expense Deductions
Taking these meal expense deductions is a three-step process: You can determine meal costs in one of two ways:
Using actual costs for mealsUsing a standard IRS meal allowance
Sole proprietors and single-member LLCs show these expenses in the Expenses section of Schedule C on line 24b. Partnerships and multiple-member LLCs report them in the Deductions section of Form 1065, the partnership tax return. C corporations enter them in the Deductions section of Form 1120, the corporate tax return. S corporations show these expenses in the Deductions section of Form 1120S. You can use per diem rates for figuring travel expenses within the U.S. The General Services Administration (GSA) updates per diem rates each year. This US-GSA page provides each year’s rates.
