Any food and beverage expenses that are directly related or associated with the active conduct of a trade or business are allowed to be deducted as business meal expenses to the extent that they are not lavish and extravagant.
There are certain meal expenses that are 100% deductible. These are:
- Recreational expenses primarily for employees who are not highly compensated, such as the business holiday party or the company picnic
- Office snacks provided to employees at the office
- Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer, meaning meals provided to employees to keep them working late or on weekends for the employer’s convenience
- Meal expenses (or goods, services, and facilities) made available to the public, usually for advertising and promotional purposes
- Meals for which the business is reimbursed for the expense
- Meal expenses includible in income of persons who are not employees
Generally only 50% of these meal expenses are deductible and include:
- Meals directly related to business meetings of employees, stockholders, agents, and directors
- Office meetings and partner meetings
- Meals with clients, customers, and vendors that will benefit the business
- Meals while on business travel status
- Meals while attending a business seminar, convention, or any other form of meeting
It is good to have two separate meals accounts in your books, such as meals–50% deductible and meals–100% deductible, and to have them booked separately when they occur. When it is time to prepare tax returns, this will remind your tax preparer about fully deductible meals and be make the process more efficient.