If you have a small business and you eat, you probably have a meals expense. There are two deductible amounts for meals. The first is 50% of the meals expense and the second is 100%.
Let’s start with what it takes to have a legitimate meals expense. You must have a business purpose. In other words, there is some kind of business related to this meal. You also need to keep a copy of the receipt from the restaurant plus show proof that you paid for the meal. And, one more thing, you have to give some kind of evidence that there was a relationship to business.
The easiest way to do this is to keep a copy of the check (either the stub you tear off, or a copy of the credit card receipt) and write on the back: WHO did you have the meal with. WHAT is the business purpose. WHERE did this happen. WHEN did it happen.
We frequently get asked how to handle it when husband and wife work together in a business. Every meal, it seems, is a business meal. Do you get the write-off for all of them? Technically, yes, if every meal is a business meal then you could take a deduction for each of them. However, in reality, I’d be careful of taking that much in deduction. I think you’d be safer with writing off no more than 2 per week.
How much of a deduction do you get? If you just said 50% of the meal expense is a deduction, you’re right most of the time. However, if you have a meal “for the benefit of the employer”, then the meal is 100% deductible. This means that you have to stay at your work place and you have a business meeting or eat at your desk. Most people don’t realize that swinging by to pick up a latte and a bagel to eat at their desk first thing in the morning is a 100% deduction. But if you eat the bagel in the car, then it’s 0% deductible. By the way, I’m not suggesting that you eat all of your meals at the computer keyboard so you get more a deduction. That’s a great way to get no social life and sticky keys.
Don’t be afraid of the meal deduction. How much is reasonable? The IRS is going to look at total gross income for your business. If you have a business that just makes a few hundred a year, then it’s pretty hard to justify much, if anything, in meals deduction. But if your business meals a few hundred thousand per year, I’d expect to see a couple thousand in meal deductions.
Tags: Business • meal deduction • meal expense • meals deduction • self-employed deduction