Business people eating a meal

Meals Expenses Tax Deductibility (50% vs. 100%)

Dear Clients and Friends:

Meals can only be deducted as a business expense if they are directly related or associated with the active conduct of a trade or business. There must be valid business purpose to the meal for it to be a deductible expense. Once this test is established, the expense falls into two categories:  50% deductible or 100% deductible. Meals with employees or business partners are only deductible if there is a direct or indirect business purpose.

Meal expense that are 100% deductible:

  • Recreational expenses primarily for employees who are not highly compensated, such as the business holiday party or the company picnic
  • Office snacks provided to employees at the office
  • Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer, meaning meals provided to employees to keep them working late or on weekends for the employer’s convenience
  • Meal expenses (or goods, services, and facilities) made available to the public, usually for advertising and promotional purposes
  • Meals for which the business is reimbursed for the expense
  • Meal expenses includible in income of persons who are not employees

Meal expense that are 50% deductible:

  • Meals directly related to business meetings of employees, stockholders, agents, and directors
  • Office meetings and partner meetings
  • Meals with clients, customers, and vendors that will benefit the business
  • Meals while on business travel status
  • Meals while attending a business seminar, convention, or any other form of meeting

Remember, you must have appropriate documentation (such as a receipt) to substantiate these expenses. The IRS will disallow expenses that do not have appropriate backup documentation.

It is good business practice to create two separate meals accounts in your general ledger to keep track of the 2 different types of meal expenses.  This will allow for proper deductibility by the tax preparer.

For more information about business meals and their deductibility please contact our office.

Very truly yours,

WRIGHT FORD YOUNG & CO.

Certified Public Accountants and Consultants, Inc.

Please note that any tax laws or regulations discussed in this memo may not necessarily be effective after the date of drafting this article.

To ensure compliance with the requirements imposed by the Treasury Department Regulations (Internal Revenue Service), Wright Ford Young & Co. is required to inform you that any tax advice in this written or electronic communication was not intended or written to be used, and it cannot be used, by a client or any other person or entity for the purpose of avoiding penalties that may be imposed on any taxpayer.