Whether it’s a luxurious 5-course meal, a drive-through dinner or family time around the table, we all gotta eat. When is the cost of a meal a legitimate business deduction and when is it a big fat red flag for the IRS?
There are a number of different ways that you get a legitimate business deduction for meal expenses. Remember, of course, that you first need to have a real business to take that deduction.
(1) You have a meal expense for business purposes with a client, prospect, employee, partner, vendor, supplier, advisor, mentor or any of a dozen other type of people that help you do business. And, during that meal, you discuss business. In this case, keep a copy of the receipt and jot a note explaining the “where, when, who, why” of the deduction. You’ll get a 50% deduction for the total cost of the meal.
(2) You have food brought into your office or prepared at your office for a breakfast or lunch meeting. This is meal that is “for the benefit of the employer” and is deductible as well. In fact, if you have a business that requires that you can’t leave the office during the day, you might consider doing what some of my customers do – hire someone to prepare pre-packaged meals that are healthy and fast and eat at the office.
(3) You give an event, such as a seminar, that includes meals. This is one case where the cost of the meal is 100% deductible – for the person hosting the seminar. If you’re attending, the cost of the seminar is most likely deductible as a business education expense, provided that the content helps you in your business.
The IRS won’t pull your return for audit based strictly on the fact that you take a meals deduction. They’re more likely to pay attention if the meals are a high percentage in comparison to the gross sales. If your business gross $1 million, a meals expense of $20,000 is hardly noticed. But, if your business gross $10,000, a meals expense of $20,000 is a big red flag.