To write off a meal as a tax deduction, it must be for business purposes, such as a meeting with a coworker, a consultant, or a lunch with a client. Late-night meal deliveries when you’re off the clock don’t count!
To be deductible, a business meal expense must meet specific IRS criteria:
- Business Discussion: The primary purpose of the meal must be to conduct business. This means there should be substantial business discussion during the meal.
- Directly Related to Business: The meal should directly relate to your business or profession. For example, a meal with a client or a consultant to discuss a potential deal.
- You or Your Employee Must Be Present: You or your employee must be present at the meal.
- Reasonable Cost: The meal's cost should be reasonable. Excessive or extravagant expenses are not deductible.
Is it deductible?
A portion of meal costs can be deducted, but the limit is 50%.
Meals can be deductible in the following situations:
- When you have a meal with a client, potential client, or business associate, with a clear business purpose. You must be present, and the discussion must be business related. In this case, 50% of the meal cost is deductible.
- When you are traveling for business and the travel requires you to be away from your tax home overnight. Meals during qualified business travel are also generally deductible at 50%.
When meals are provided to employees or contractors during certain types of business meetings or events. Some of these may be 50% or even 100% deductible depending on the nature of the event.
Non-deductible: The IRS treats these as personal expenses, not business expenses.
Simply eating while working, such as having lunch at your desk or ordering food during a regular workday, is not deductible.
Ordering a coffee to your home or business office while working
Can I charge these to my business account? How will these transactions be categorized in Heard?
Business meals are categorized as Meals and Entertainment in Heard and should be paid via your business bank account. The Profit & Loss report will show the full amount of the meal as an expense, because Heard does not apply the 50% limitation within the bookkeeping software. During tax season, your tax preparer will correctly adjust these expenses to the 50% deductible amount when preparing your return.
What specific documentation is required to support the deductibility of a business meal?
Because business meals can sometimes draw extra attention from the IRS, we recommend keeping all receipts, even those under $75. It’s also a good idea to jot down a quick note on the receipt (such as who you met with and the purpose of the meal) to keep clear documentation on hand if it’s ever needed.
S Corporation
There aren’t many other considerations for S-Corps, as business meals operate under the same rules as a Sole Proprietorship. If you paid for the business meals through the business, everything acts as normal.
If you paid for business meals personally using your own card or cash, the correct method for an S-Corp owner is to reimburse yourself through an Accountable Plan. This ensures expenses are properly documented, supported by receipts, and reimbursed by the business in accordance with its policies. Using an Accountable Plan is required for S-Corp owners when personal funds are used for business expenses (like business meals), and it allows the deduction to remain on the business return rather than being treated as a personal cost.