Heads up: this article is only relevant for U.S. businesses, and does not reflect changes from the 2018 Tax Cuts and Jobs Act
Writing off meals for your small business can be pretty confusing. Some business meals are 100 percent deductible, some are 50 percent, and a few are nondeductible. It all depends on the purpose of the meal, and who benefits from it.
From a company-wide Beer Friday to a fancy steak dinner with your biggest client, we’ll walk you through the different meal deductions your business can take advantage of so you can save big on your tax return.
The two types of meal deductions
100% Deductible: A food expense that benefits at least half of all employees, or the general public, free of charge. This can be categorized as “Company Events and Kitchen Expenses.”
50% Deductible: A food expense that benefits clients, partners, or just a handful of employees. This can be categorized as “Meals and Entertainment.”
Of course, that’s just our summary of a few thousand words from the IRS so there’s a bit more to it than that. But once you see a few examples, you’ll know what to look for (and you’ll save a ton of money come tax return season).
Your meal deduction depends on the purpose of the meal, and who benefits from it.
How to spot a 100 percent deductible meal
Your eyes should light up if you see a receipt for any of the following, 100 percent deductible expenses:
- Bagels laid out for all your employees
- Beer supplied for a Friday company celebration
- A company-wide holiday party
- Food and drinks provided free of charge for the public
- Dinner provided for employees working late (since working late benefits the company directly)
In short, any food expense that either benefits the whole company, the general public (at no cost), or a charity, is 100 percent deductible. You’ll want to catch as many of these as you can, and categorize them as Company Events and Kitchen Expenses.
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How to spot a 50 percent deductible meal
If the meal is work-related, but doesn’t benefit the entire company, it probably goes under Meals and Entertainment.
Here are some of the most common examples:
- A meal with a client where work is discussed (that isn’t lavish)
- Employee meals at a conference, above and beyond the ticket price
- Employee meals while traveling (here’s how the IRS defines "travel")
- Treating a few employees to a meal (but if it’s at least half of all employees, it’s 100 percent deductible)
- Food for a board meeting
So what’s nondeductible?
Most work-related meal purchases you can think of are either 100 or 50 percent deductible. But there are a few exceptions. For example, if you pay for your clients’ night out but you don’t actually go with them, it’s nondeductible. The same applies to a client meal at a restaurant where you invite friends or spouses—the cost of your friends is nondeductible (but you can write off half the client bill).
Someday we’ll all wear smart devices that identify, categorize, and file every deductible expense under the sun, so we all get the biggest tax deduction possible. Maybe. But until then, your categorization decisions matter. Keep these guidelines in mind and you’ll thank yourself come tax time.