If you want to take the business meal deduction, you have to be able to prove it. Here’s what you need to do.
Table of Contents
This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
What are the business meal deduction rules?
You can deduct 50% of the cost of business meals if you meet the following requirements.
- The expense is an ordinary and necessary expense paid to carry on your trade or business. Don’t take “necessary” too literally. If it’s routine in your industry to take clients out, it can still be a “necessary” expense even if you technically could have met in a conference room with no food.
- The expense is not lavish under the circumstances. This varies based on what you do or where you are. In some places and lines of work, fine dining is the expectation.
- The taxpayer or an employee of the taxpayer is present. You can’t just send clients out to lunch on their own. They have to be eating with someone from your business.
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact. You can’t take your employees out on the corporate card and deduct the expense. The purpose of the meal has to be meeting with other contacts. You can deduct the cost of meals for employees who attend. (There is a separate deduction when you provide employee meals at your place of business.)
- Entertainment costs are no longer deductible even while you’re eating or drinking. You must split out the costs of entertainment and only deduct the food and drinks.
Note: The cost of meals while engaged in business travel is a separate deduction.
What proof do you need to support the business meals deduction?
Many people try to claim false business meals deductions, so the IRS watches these deductions closely. There are several things you need to be able to prove in case of an audit.
- The cost of the meals. This will usually mean having a receipt from the restaurant. If you’re eating at an entertainment venue, the receipt needs to be itemized to show that the expenses you claimed were for food and drinks not entertainment. If you lost or didn’t save your receipt, a bank or credit card statement may be acceptable depending on how much detail it has.
- Who was there. You should keep a list of who was at the meeting and their relationship to your business. For example, your owner and senior sales manager and the other company’s owner and CFO. Include names of each individual and company involved.
- The purpose of the meeting. You need to have a concrete business purpose for getting together. You can’t just talk about business for a few minutes to make it a “business meal.” For example, were you trying to sell something new, get them to renew their contract, or doing an annual review of their account?
Most of the proof of who was there and why will just be a document you create to log your deduction. If you use bookkeeping software, you might write a note on the expense entry or with your receipt upload.
It’s also a good idea to save other types of proof like business cards, calendar entries, or emails confirming the meeting. You can often save these documents as a PDF and add them to your bookkeeping software just like a receipt.
How do you claim the business meals deduction?
The business meals deduction is a separate line item on your tax return. For sole proprietors, you’ll include it on your Schedule C.
When you use tax filing software, it will typically ask you for the full cost of the meals. It will then automatically calculate the 50% deduction for you.
You don’t need to include your receipts or other proof with your tax return, but you do need to save them in case of an audit.