Best Practices for Deducting Business Meals

What you need to know when combining business and pleasure!

While most business owners know that one of the perks of owning a business is the ability to deduct their business-related meal expenses, in practice, meeting the IRS’s requirements for meal deductions isn’t as simple as just charging the meal to a business card. There are a number of criteria that must be met in order for the expense to be deductible; however, if you deduct business meals in good faith and keep accurate records, you can maximize your tax savings while avoiding IRS red flags.

What are the current guidelines for tracking and deducting meal expenses?

  • The following meal and food expenses are all deducted at 50%:
    • Business meals with clients
    • Food items for the office (such as office snacks or food for a team meeting)
    • Meals while traveling for work
    • Meals at a conference
  • The following meals expenses are deducted at 100%:
    • Food for company holiday parties, team-building, and employee appreciation events
      • To qualify, these activities must be for the whole company and the frequency should be within reason – eg. quarterly team outing; holiday party
    • Food and beverages served  to the public (such as a client appreciation event)
    • Dinner for employees working late at the office
      • This is geared towards employees working in a physical office, so food delivery to an employee’s home would be deducted at 50%
      • We recommend “formalizing” this benefit by referencing it in your employee handbook
  • A record should be kept documenting the business purpose of each meal, including details like who you met with, what the nature of the meeting was, what business was discussed, etc.
  • Receipts must be kept for transactions over $75; however, accurate documentation is required for all meal expenses, so we recommend saving all meal receipts

Wait, I thought meals used to be 100% deductible?

  • To help spur spending at restaurants during the pandemic, there was a temporary tax policy change allowing for meals to be deducted at 100% for 2021 and 2022. 
  • As of January 1, 2023, most business meals have returned to the 50% deduction.
    • See above for the exceptions
  • Entertainment expenses continue to not be deductible

So what do I actually need to do?

  • We recommend setting up two business meal categories in your Chart of Accounts – “Meals (50%)” and “Meals (100%)”
    • If you’d like to track travel meals separately, we recommend calling it something like “Travel Meals (50%)”
  • While most businesses’ food purchases are deducted at 50%, you should be mindful of which food/dining expenses may fall into the 100% category and make sure to communicate these to your accounting partner 
  • As always, documentation is key! When you incur a business-related meal expense, we recommend writing a short memo on the receipt with the relevant information and filing it (especially if it is over $75). Specifically:
    • Who you met with, the business purpose of the meal, what was discussed

Remember, the key to a successful deduction is not just incurring the expense, but also in qualifying and documenting it properly. By understanding and complying with IRS guidelines for deducting business meals, keeping detailed records, and accurately categorizing your meal transactions, you can enjoy the benefits of deducting business-related meals while minimizing your overall tax liability and avoiding IRS scrutiny!

KORE Accounting Solutions is a future-focused bookkeeping and management accounting firm specializing in providing modern attorneys and legal professionals with the data, insights, and guidance they need to stay compliant and run more profitable law firms.