Definition of a “Business Meal”

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CoastalWinds
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Definition of a “Business Meal”

Post by CoastalWinds » Wed Jan 15, 2020 11:54 pm

For any CPAs or self-employed folks out there, I’m seeking clarification on what constitutes a business meal that is eligible for tax deduction. Here is my understanding:

-meals while traveling / away from office
-taking clients out for meal

Are there others?

What about taking friends/family members out for meal specifically to discuss their suggestions on aspects of the business (e.g., marketing strategies)? Where the meal is the way of saying “thank you for your time and input”.

fyre4ce
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Re: Definition of a “Business Meal”

Post by fyre4ce » Thu Jan 16, 2020 12:22 am

I would not feel comfortable defending the type of meal you describe as a deductible business meal in an audit. If your family has input into your business, there’s no reason that has to be discussed during a meal- they can just tell you. My spouse and I discuss her work day over dinner in the evening, but that doesn’t mean she can deduct it as a business expense, regardless of how insightful and witty my contributions may be.

Remember most legitimate business meals are only 50% deductible.

Skeet
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Joined: Mon Aug 11, 2014 8:43 pm

Re: Definition of a “Business Meal”

Post by Skeet » Thu Jan 16, 2020 12:38 am

All subject to the 50% deduction limitation--others could be:

- meals for prospective clients
- meals with contractors, vendors, consultants, employees, etc.
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.

Meals need to be ordinary and necessary for your business, and not "lavish or extravagant". To be deductible as a travel meal, you need to be away from your main place of business for more than one day, generally.

Meals with family and friends, even for marketing or other business feedback, would not likely be accepted by the IRS if questioned, unless the family or friend was directly associated with your business.

Skeeter

Soon2BXProgrammer
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Re: Definition of a “Business Meal”

Post by Soon2BXProgrammer » Thu Jan 16, 2020 11:07 am

Skeet wrote:
Thu Jan 16, 2020 12:38 am
All subject to the 50% deduction limitation--others could be:

- meals for prospective clients
- meals with contractors, vendors, consultants, employees, etc.
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.

Meals need to be ordinary and necessary for your business, and not "lavish or extravagant". To be deductible as a travel meal, you need to be away from your main place of business for more than one day, generally.

Meals with family and friends, even for marketing or other business feedback, would not likely be accepted by the IRS if questioned, unless the family or friend was directly associated with your business.

Skeeter
For clarity, my rudimentary understanding (which is probably wrong), is that unless on travel (substantial rest or overnight), if you want the meals deduction you have to buy the client/contractor/vendor/etc their meal (in addition to yours).

travel: would you consider traveling from Seattle to Portland by train first thing in the morning, being in the other city for the day for meetings, and catching the last train of the day back "on travel"?

How does that work for the last two categories you posted?
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.

nolesrule
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Re: Definition of a “Business Meal”

Post by nolesrule » Thu Jan 16, 2020 12:02 pm

Soon2BXProgrammer wrote:
Thu Jan 16, 2020 11:07 am

How does that work for the last two categories you posted?
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.
You get a receipt for the cost of the meal and claim it as a meal expense.

When I was self employed i was part of a business networking group that met weekly and lunc hwas part of it. We prepaid quarterly for our meals (separate from the membership fee) and just reported the cost of meals on the proper tax forms.

Soon2BXProgrammer
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Re: Definition of a “Business Meal”

Post by Soon2BXProgrammer » Thu Jan 16, 2020 12:12 pm

nolesrule wrote:
Thu Jan 16, 2020 12:02 pm
Soon2BXProgrammer wrote:
Thu Jan 16, 2020 11:07 am

How does that work for the last two categories you posted?
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.
You get a receipt for the cost of the meal and claim it as a meal expense.

When I was self employed i was part of a business networking group that met weekly and lunc hwas part of it. We prepaid quarterly for our meals (separate from the membership fee) and just reported the cost of meals on the proper tax forms.
I was trying to understand where in the IRS guidance says that those are deductible meals at the 50% rate?

nolesrule
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Re: Definition of a “Business Meal”

Post by nolesrule » Thu Jan 16, 2020 12:20 pm

Soon2BXProgrammer wrote:
Thu Jan 16, 2020 12:12 pm
nolesrule wrote:
Thu Jan 16, 2020 12:02 pm
Soon2BXProgrammer wrote:
Thu Jan 16, 2020 11:07 am

How does that work for the last two categories you posted?
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.
You get a receipt for the cost of the meal and claim it as a meal expense.

When I was self employed i was part of a business networking group that met weekly and lunc hwas part of it. We prepaid quarterly for our meals (separate from the membership fee) and just reported the cost of meals on the proper tax forms.
I was trying to understand where in the IRS guidance says that those are deductible meals at the 50% rate?
Don't know about 501c3, but with business networking groups everyone in the room is a current or potential customer.

Soon2BXProgrammer
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Joined: Mon Nov 24, 2014 11:30 pm

Re: Definition of a “Business Meal”

Post by Soon2BXProgrammer » Thu Jan 16, 2020 12:28 pm

nolesrule wrote:
Thu Jan 16, 2020 12:20 pm
Soon2BXProgrammer wrote:
Thu Jan 16, 2020 12:12 pm
nolesrule wrote:
Thu Jan 16, 2020 12:02 pm
Soon2BXProgrammer wrote:
Thu Jan 16, 2020 11:07 am

How does that work for the last two categories you posted?
- meals at 501 organizations such as Lion's Club, Rotary
- meals at business organization meetings like Chamber or National Association of XXX, for networking for your business for example.
You get a receipt for the cost of the meal and claim it as a meal expense.

When I was self employed i was part of a business networking group that met weekly and lunc hwas part of it. We prepaid quarterly for our meals (separate from the membership fee) and just reported the cost of meals on the proper tax forms.
I was trying to understand where in the IRS guidance says that those are deductible meals at the 50% rate?
Don't know about 501c3, but with business networking groups everyone in the room is a current or potential customer.
https://www.irs.gov/pub/irs-drop/n-18-76.pdf
Under this notice, taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:
1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
2. The expense is not lavish or extravagant under the circumstances;
3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages
I guess I was interpreting this as you have to spend money on those other people, and not just yourself based on #4.

This is why i was curious about how to deduct those types of expenses.
Last edited by Soon2BXProgrammer on Thu Jan 16, 2020 5:20 pm, edited 1 time in total.

Topic Author
CoastalWinds
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Joined: Sat Apr 06, 2019 8:28 pm

Re: Definition of a “Business Meal”

Post by CoastalWinds » Thu Jan 16, 2020 3:32 pm

For #4, please define “consultant”. Does it have to be someone that you are paying consulting fees to?

Skeet
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Joined: Mon Aug 11, 2014 8:43 pm

Re: Definition of a “Business Meal”

Post by Skeet » Wed Jan 22, 2020 12:50 am

The IRS doesn't require that a consultant be currently your consultant, they can be a potential consultant. For example, maybe you need to hire a lawyer you so ask a few lawyers out to lunch to talk to them to meet and decide if you want to hire them. That meal is 50% deductible:

From IRS Notice 2018-76: 'The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact..." (my emphasis)

As to the Rotary Club, Chamber, Lion's etc., for a self employed person you need to have a "business interest in being a member" for the dues and/or meals to be deductible. The networking aspect of those meetings normally meets that requirement, in that you attend to meet other like-minded business people to perhaps find clients, consultants, learn business techniques, etc.

If your business travel is within one day, whether by plane, train or automobile, the IRS says that unless it's overnight or a trip where you're required to stop and rest/sleep, then a meal is not deductible. If overnight, you don't have to buy anyone else a meal in order to deduct your own. Of course, if you bought a business meal for a client, etc., then you're back to the entire meal being deductible whether you're traveling or not.

Overarching all business meals is that they must be BOTH ordinary and necessary for your type of business (from Form 2106 instructions):

An ordinary expense is one that is common and accepted in your field of trade, business, or profession.
A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

You must also have bona fide, substantial business discussions. Goodwill entertainment with informal business discussions is not deductible, i.e. probably taking your brother-in-law to a nice dinner, unless he's actually helping with your business.

hope this is helpful, as best I know :)

Skeeter

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Hub
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Re: Definition of a “Business Meal”

Post by Hub » Wed Jan 22, 2020 10:31 am

Very helpful. Thank you skeeter.

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