Brad, since the beginning of the year, I’ve taken quite a few prospective clients out to lunch. Are these lunches tax deductible?
Great question, Erik. Lunches are a common expense for many business owners. While I’d like to tell you to go ahead and write the whole bill off, there are few things to keep in mind when expensing meals. Here are the three things to remember to optimize deductions:
50 Percent is Considered Deductible
If you’re meeting a current client at The Park Café for lunch to talk business strategy or taking a prospective client out for a bite after a successful meeting to discuss partnership, 50 percent of the bill will be considered deductible by the IRS. Go ahead and expense the whole thing, but remember: the IRS is only going to let you write off half the club sandwich. And keep in mind that if you’re expensing a business lunch, the focus of it should be business—not your fantasy baseball team.
The IRS expects you to document where, why and when you had the meal you’re expensing. Because of this, we recommend that business owners use apps like Expensify to help with recordkeeping. Expensify allows you to easily photograph a receipt and make notes about the meal. This is a huge timesaver and an excellent way to leverage technology to streamline your business.
If you’re a business owner who travels frequently and regularly eats meals out, consider a standard meal allowance. This also works for employees who travel for business. The US General Services Administration publishes the daily standard rates by state, and it’s a good alternative if meals out are a regular occurrence. And while you don’t need receipts, you’ll be expected to account for the date, time and reason for travel.