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When are meals 100% deductible?
In general, you can deduct half of the cost of meals incurred for business purposes. However, did you know that you might be able to deduct 100% for certain types of meal expenses?
A 100% deduction for meals is not typical, but there are occasions when you can take full advantage of the deduction.
Let’s say you ask an employee to work through their lunch to get a project done and you have lunch delivered so they can eat while working. This would be a meal provided to the employee because they had to work through lunch at the request and for the benefit of the employer. In this circumstance, the employer can take the full 100% deduction for meals.
Employee staff meetings where food is provided is not 100% deductible – unless it’s a holiday party.
Here’s a general guideline:
WHEN IT’S NOT DEDUCTIBLE:
Generally, meals during business travel when the travel does not require an overnight stay are not deductible at all. Whoa, what did I just say? Travel meals are only deductible when the employee is required to stay overnight. If there is no overnight stay then the IRS considers the meal to be personal and personal expenses for meals are never deductible. For example, if the business office is located in San Francisco, CA and the employee flies to Los Angeles to meet a client in the morning and after the meeting the employee eats lunch at a local café and heads back to the airport after lunch to fly back to San Francisco, that meal at the café is considered personal and non-deductible. Yikes! Surprising isn’t it?
I have had many clients surprised by that one. However, if the employee decided to take the client to lunch the meal would have been 50% deductible. Moral of that story, if you are traveling for the day and eating alone then it’s personal and not deductible.
Also, If you take an overnight business trip and mix personal with business, then any expenses incurred that are unrelated to a business function are not deductible.
Meals provided during business meetings, office meetings, staff meetings, department meetings all fall into this category and are 50% deductible. If there is no business function to the meal, it is completely non-deductible for tax purposes.
Meals with people related to the business such as clients, customers and vendors are 50% deductible provided that there is a business purpose for having the meal with them.
If you have a company picnic or holiday party then you can deduct 100% of the cost of the meals for those events.
Office Snacks – coffee, soft drinks, bottled water, donuts, and similar snacks or beverages provided to employees on the business premises are also 100% deductible (I consider them necessary office supplies).
Food made available to the public for free – usually as part of a promotional campaign.
Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer. Translation: if you are providing meals to the employees in order to keep them working late, working weekends, or being on call, it is for the employer’s convenience to have them at work and the meal is a means of enticement to keep them working then an employer can fully deduct this. Watch out though – if you do this a lot then an employer can possibly get in trouble with some labor laws not to mention have some burned out employees.
If the meals expense is included as taxable compensation to the employee and included on the W2, then the expense is fully deductible to the employer. So let’s say an employer buys the employee lunch but then includes the value of that lunch in the employee’s W-2 as a fringe benefit. Then the cost of the lunch is fully deductible to the employer.
If a professional firm bills actual meal expenses separately when invoicing the client and is reimbursed by the client, the actual meal expenses for that engagement are fully deductible. If you travel and bill your client for all the travel expenses (including the meals) then you can fully deduct the cost of the meal.
Meals and food as part of a charity event are fully deductible. To qualify, a charitable sporting event must be organized for the primary purpose of benefiting a 501(c)(3) organization, and you must contribute 100% of the net proceeds to the organization, and must use volunteers for substantially all the work performed in carrying out the event.
Ok that’s probably more info that you wanted…
Long story short – any employee meetings or meals are generally 50% -unless the meal was a working meal because the employee couldn’t take the time off to have lunch because the employer required them to work.
This is a highly scrutinized account in an audit. If you are unsure – please ask your tax adviser.
Any accounting, business or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
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