Many business owners wonder whether or not they can deduct the cost of food and drink when meeting with clients or traveling for business. The answer is yes, you can deduct business-related meals; however, it isn’t as simple as that.
With the Tax Cuts and Jobs Act (TCJA), business deductions for “entertainment, amusement, and recreation” were eliminated. This means many business owners feared that after January 2018, they would not be able to deduct food and beverages. Rest assured that this does not include business-related meals. However, if you plan to deduct your meals, there are certain requirements you want to keep in mind.
Meals While Traveling
Expenses from business trips are partially tax deductible, including meals. You can deduct 100 percent of your lodging and mileage, but you can only deduct 50 percent of your meals. This includes the entire cost of the bill, not just the food — you can also include beverages, sales tax, and gratuity.
There are stipulations to this. You need to be truly “out of town” — being in the next town over isn’t going to cut it. A business trip means that you will be gone for longer than a day and will require you to sleep, so a day trip doesn’t count. If you are out of state, any meal amount qualifies for a deduction.
The trip also requires a clear link to a business activity. Examples of business trips include conferences, trade shows, continuing education, or visiting an existing or potential client or customer.
Local Meals
Business-related meals that you have in your area may also be deductible if they meet certain requirements. If you take a client or prospective client out to eat and cover a portion of the bill, it counts as a deductible business expense. However, the amount spent at the restaurant must be over $15. This is because it needs to be clear that you paid for multiple people, not just yourself.
Necessary Documentation
Keep in mind that food expenses are generally put under a microscope to prevent abuse. This means you want to keep thorough records.
For all business-related meals, keep a record of:
- The date
- Amount spent
- The place
- The business relationship
- Receipts/other supporting documents (only for meals over $75)
Knowing what expenses you can deduct for your small business can be confusing. That’s why many benefit from our small business accounting services in Gilbert. Contact us if you’re interested in meeting with an experienced accountant.