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What qualifies as a deductible business meal?

Meals include food + beverages + taxes + related tips. Business meals fall into one of two categories:

  1. Meals related to business travel
  2. In order for travel meals to be deductible, the travel is typically at a distance requiring an overnight stay, and should be at a reasonable cost

  3. Meals related to business entertainment
  4. These meal and entertainment expenses are related to entertaining a client, customer or employees.

What qualifies as a deductible entertainment expense?

For entertainment costs (and meals that fall into the category of entertainment) to be considered a deductible business expense, they must meet the IRS requirements of either the Directly Related Test or the Associated Test (summarized below). Once you have determined that the expense is deductible, then you must decide if it is fully deductible or a limited deduction.

These meal and entertainment expenses are fully (100%) deductible

  • Company picnics or holiday parties (when all employees are welcome)
  • Occasional meals provided on the employer’s premises if more than half of the employees are provided the meals for employer’s convenience (such as meals brought in during company meetings
  • All other entertainment expenses are 50% deductible
  • Examples of 100% deductible Business Meals and Entertainment:

  • Company Christmas party dinner at restaurant
  • Cost of park rental, food, and decorations for Company picnic
  • Lunches brought in for staff during a Company meeting (at your place of business and more than half of the employees are provided the meals for employer’s convenience)
  • Examples of 50% deductible Business Meals and Entertainment:

  • Take Banker to lunch to discuss new loan
  • Take Employee to lunch to discuss annual review
  • Attend sports event with Client (Cost of luxury box tickets for more than one event may limit the amount of deduction available)
  • Ticket price to take a Client to the Opera (Employer or staff must attend with client)
  • Meal costs immediately before, during or immediately after attending continuing education seminar
  • Record the expense by deductibility to take full advantage!

    So that your accountant deducts your expenses correctly at year-end, record the expense in one of the two accounts, previously set up in your Chart of Accounts:

    Meals and Entertainment-100% deductible
    Meals and Entertainment – 50% deductible

    Record the Details!

    Make these details visible in your expense record:

  • Amount – Cost of each separate expense.
  • Time – Date of entertainment. (Also see Business Purpose.)
  • Place or Description – Name and address or location of place of entertainment. Type of
    entertainment if not otherwise apparent. (Also see Business Purpose.)
  • Business Purpose and Business Relationship – Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. For entertainment, the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.
  • karen todd

    Article by Karen Todd,
    Senior Financial Analyst ~ Accredited Business Advisor
    Profit Source Advanced Bookkeeping