Jovan Johnson, MBA, CFP®, CPA/PFS
Have you ever wondered whether you could deduct the cost of a restaurant meal that you had with a prospect or client? The answer is most likely yes, however, the amount you can deduct may vary. Figuring out how to calculate your business meals deduction can be confusing. Some business meals are 50% deductible, while others are 0% or 100% deductible. This will depend on the purpose of the meal and who benefits from it.
The business meals deduction is one of the many tax deductions that you should consider taking advantage of as a small business owner. Let the IRS cover some of the cost of your business meals. This is often a missed opportunity for small business owners to reduce their tax bill significantly.
The key is to understand what settings enable you to deduct your business meal. In this article, I will cover all the ins and outs that you need to know to deduct business meals.
What qualifies as a business meals deduction?
The first and most important rule of thumb when evaluating what business expenses are tax deductible is to determine if it is an ordinary and necessary business expense. Ordinary refers to whether the expense is common and accepted in your line of business or industry. Necessary refers to whether the expense is needed and appropriate for you to operate your business. In addition, you want to ensure that the business meal is not lavish.
A common question I get from clients is whether alcoholic beverages qualify for this deduction. If you meet the above criteria, the answer is yes. The IRS will help cover the cost of your margarita over a business meal.
So, what business meals are not deductible? Any meal that does not satisfy the conditions above is not tax deductible. Some examples of meals that are not deductible include lavish meals (think Restaurant Guy Savoy in Vegas), solo meals, coffee or snacks for a home office, or personal groceries. A rule of thumb is that if you are eating alone, it is not deductible on your taxes.
How much of the business meal can I deduct?
The easiest way to illustrate the different deduction percentages based on the different types of business meals is to use examples. In the table below, I have included a list of the most common business meal types and their respective deduction percentages for 2023 and 2024.
How can I keep records?
In case of an audit, you want to keep detailed records of the business meals including the business purpose, location, date, and individual(s) you met with. You will want to attach this information to your receipt. Because this expense item is often highly scrutinized by the IRS, I highly recommend using a bookkeeping software such as QuickBooks to keep these records. QuickBooks offers a seamless app that allows you to take a snapshot of your receipts and include a description. This seamless process will save you so much time and effort when it comes time to file your taxes!
This will also help your CPA or tax advisor come tax time when they are preparing your return. If you are not currently working with a CPA or tax advisor, you can learn more about our accounting services for small business owners here.
Bonus:
As a bonus, you may be able to deduct the mileage incurred as you drive from your place of business to the location of your business meal. You can learn more about how to claim a mileage tax deduction for your small business here.
Final Thoughts
The tax code has many benefits available to small business owners. However, the tax code is very complex and changes frequently. A general rule of thumb is to always check whether your business expense is ordinary and necessary for business purposes. You should consider partnering with a CPA that can help you take advantage of all the tax deductions applicable to you. A CPA can help you minimize taxes in a compliant way.
If you would like to learn more about how we can serve you, please feel free to contact us.
Disclosures
None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
