Food. It’s pretty basic, and you wouldn’t think that complicated. But when it comes to tax, not all food is created equal. Here’s a simple summary of how to think about meals from a tax perspective, to be sure you’re getting your bang for the buck:
Meals for one
Generally speaking, the only time you can deduct meals for one, is if you’re on a business trip. Unfortunately, a business trip doesn’t include heading across town for the day and picking up something along the way — you have to be away from your home area, and staying overnight. When you do, you’re able to claim the actual cost of your meals while traveling, or use the standard per diem rate updated by the government. But lest you be encouraged to spend liberally, Congress limits your actual tax deduction to only 50% of the qualifying amount (so a $20 meal, translates into a $10 tax deduction).
Meals with your team
- Say it’s time for a team lunch, and you head to a favorite restaurant in town for a bite to eat. As long as there’s a business purpose (e.g., you talk shop for part of the meal), the meal is deductible, but still with the 50% limitation applied to the final bill. And if there’s non-business members present (e.g. family members), their part of the bill is not deductible either.
- But let’s say it’s summer, and you want to hold a recreational or social activity for your team, like a 4th of July picnic: Hooray!, because these meals can be 100% deductible, as long as they’re not just for the “highly compensated” team members.
- From time to time, you may provide a meal onsite to your team who are working overtime through dinner to meet a deadline — this meal can be 100% deductible too, given it’s determined to be “on the employer’s premises” and “for the employer’s convenience”.
- Lastly, a stocked fridge of snacks and drinks can also be 100% deductible as a “de minimis” team benefit (meaning, accounting for the value to each team member is administratively impractical).
Meals with customers
- Similar to lunches with team members, meals with customers are deductible as long as there’s a business purpose, but still only 50% though. And also similar to lunches with team members, you’ll want to make a short note of “who” and “what”, to demonstrate that purpose.
- However, if you’re providing food to the general public as a means of promoting goodwill, that food is 100% deductible. So if you host an open house, or setup a table at a community event, that food will fully deduct from the bottom line.
- Lastly, although “business gifts” fall into a different category altogether, I’ll mention them here since they’re somewhat related: Congress allows you to deduct up to a paltry $25 per recipient for business gifts. Which means that a $75 gift basket, translates into a $25 deduction.
Believe it or not, there’s actually a host of other “food rules” out there (such as for company cafeterias, trucking industry, on-call personnel, and extravagant meals, just to name a few). But the above examples cover most of the scenarios you likely come across, and hopefully provide some helpful guidance. Which also points out the need for good accounting design — since all meals aren’t created equal, you’ll want to be sure the 100% ones get treated properly, so you don’t end up paying more taxes than you have to. To talk over your business’ scenarios, or to get setup using our special Economic Design Method, simply reach out anytime.