“Tax law, like Congress, works to distance itself from common sense.”
I don’t always eat lunch, but when I do it ‘s tastier when subsidized by the government. Yum! Here is an overview of the rules.
50% of the reasonable cost of business lunches is deductible. (Transporters can deduct 80%*.) If it is appropriate to bill a customer for lunch, you can deduct 100% of the cost and the customer is stuck with the 50% limit. I haven’t done this yet, but you may have a construction contract with travel and meal per diems or some such.
What counts as a business lunch? Is it a lunch during business hours? Not so much.
Travel: Meals are deductible when you are out of town on a business trip overnight. It can be considered travel if you are on the road for a long workday that requires a rest before heading home.
It is kind of the IRS to allow us to eat—even alone—when traveling. They are apparently concerned about weight and do not want you or me to eat lunch when working otherwise. A solo lunch at our desks or at a nearby bistro is not deductible.
Directly related: If you take a customer, prospective customer, or business associate to lunch and talk business the cost is deductible. There must be a business reason for the lunch and you should expect to gain something out of it. (“No such thing as a free lunch.”) You should get or give advice or hope for an improved relationship, a new work project, a referral, or a new customer.
Associated: The cost is deductible when the lunch is directly before or after a business meeting or event you attend. It is a good time to pick up the tab for fellow participants and get some schmooze points.
Employees: Costs for snacks and coffee, the occasional all-employee picnic or party, and meals provided on-site for specific circumstances—such as on call emergency workers*—can be 100% deductible.
We occasionally bring in lunch during busy season and for all-employee meetings and deduct 50% of the cost. Be careful of deducting lunch costs for owners and highly paid employees only and for writing off too many lunches. It could become reportable compensation.
If you or I are audited, we will have to provide a receipt if the amount is over $75 and show the date, place, names and business relationship of the eaters, and describe the expected business benefit.
- Document as you go on a calendar, diary, journal, or app. I find it difficult to look at a crumpled Amex receipt and conjure the required information.
- Set up separate meal expense accounts for the 100% and 50% deductible varieties.
- Seek our advice before spending money on unusual or overly expensive lunches.
Required disclaimers: Tax law is complicated and there are usually exceptions to the exceptions. This writing gives general advice only. *If you have questions about a specific circumstance please contact us.
Nothing in this article can be used to avoid Federal or State taxes or penalties.