Whether you're meeting with a potential client, talking strategy with a business partner, or feeding employees, meals are a favorite deduction amongst business owners. Unlike other business expenses, the deductible rate for business meals is 50%.
While there are many legitimate business meals, there are also several exceptions and circumstances that disqualify a meal as a deductible business expense, including:
- Food and beverages purchased from convenience stores, often to/from a worksite
- Meals purchased for solo lunch breaks or while working
- Personal groceries and meals
Meals is a deduction that can be abused by business owners, so this category can be heavily scrutinized during IRS audits. Our team will look for anything that could raise flags and may ask questions about these expenses to make sure we capture everything accurately.
In addition, here are a few dos and don'ts we share with business owners regarding deducting business meals:
Do Keep Diligent Records
The burden of proof exists with every expense, but record-keeping should be even more meticulous where meals are concerned. In addition to an itemized receipt for the meal, business owners should document whom they were with and the business purpose of the meal to provide irrefutable evidence to an auditor if requested.
Don't Mix Business and Personal
A fundamental truth with all things accounting is that mixing business and personal is never recommended. Since the line between the two can be paper thin when it comes to meals, err on the side of caution when deciding what to claim as an expense to the business to avoid having expenses disallowed.
Do Keep Things Reasonable
Aim to keep meal expenses reasonable and avoid anything that could be deemed "lavish" or "extravagant" given the context. Keep in mind the business's budget, also, as large meal expenses driving net profit to zero—or less—may raise an eyebrow or two and draw the attention of auditors.