Can Business Meals Be Used as a Tax Deduction?

Amherst, NH Business Owner Has Questions

In 2018 the Tax Cuts and Jobs Act eliminated the ability for businesses to deduct entertainment and recreation expenses.  However, the Business Meal Tax Deduction was not eliminated with this change.  To qualify for this deduction the meal expense may not be lavish or extravagant, as subjectively determined.  The taxpayer or an employee of the taxpayer must be present at the meal and the food and drink must be provided to a business associate.

A business owner in Amherst had recently been incurring quite a few expenses related to customer meals.  Curious if this could be deducted from her taxes, she contacted the team at Merrimack Tax Associates.

Business Meal Deduction Limitations

Normally the business meal deduction allows you to deduct 50% of the cost of the meal.  However, a special rule was enacted in 2021 and 2022 allowing for 100% of a restaurant meal’s expense to be deducted.  This was an effort to support restaurants following the economic damage from COVID-19.  Business meals purchased from non-restaurants for later consumption, including grocery stores, specialty food stores, and other convenient retailers, are only eligible for the 50% deduction.

Record Keeping for Business Meals

Tax deductions for meals and beverages are often strictly enforced, requiring the business to keep meticulous records of the purchases.  This record keeping should include any receipts that you are able to collect.  The IRS only requires receipts, canceled checks, or credit card slips for those meals that total over $75.  But it is good practice to keep all receipts for your own records.  Keep a record of the date of the meal, the amount including tax and tip, the location, and the names and relationships of those present.

The Amherst business owner was pleased to hear that all her business meals would be fully deductible for 2022.  She has begun the process of detailing the necessary information for when it comes time to file taxes.