You’re out to lunch with a friend who snags the bill, slips her business AmEx into the check-holder and boldly states, “It’s on the company.”
Except it’s not actually that simple.
How do you know if something “counts” as a business meal - and therefore as a business tax deduction?
To get to the bottom of it, you’ll need to consider the purpose of the meal, and who is benefitting from it.
Business Owners & Personal Expenses
Just because you’re a business owner who purchased food, it does not necessarily mean it qualifies as a business meal! Sometimes it’s just sustenance you bought for yourself because you’re a human that has to eat, and it’s not truly associated with operating your business.
Let’s say you had a hectic morning and forgot lunch at home. Grabbing food in the drive through at lunch time is not a qualified business expense. You would be eating lunch whether working or not, in the office or not, and it’s unrelated to running your business.
These meals should be purchased using personal funds.
What Makes it a Business Meal?
If a meal benefits your employees or your clients, then it’s more likely to be considered for business.
Here’s what needs to happen to be a true business meal:
The business owner or employee is present.
The cost of the meal isn’t “lavish or extravagant”
The meal is with a business contact, like an employee, consultant or vendor
The meal has an “ordinary and necessary” business purpose
Unlike most business expenses, you may not be able to deduct the full cost of the meal you purchase. You should still purchase the meal using the company card; your tax preparer will adjust the cost to the deductible portion when they prepare your taxes.
Examples of Deductible Meals
Here are examples for each category:
100% Deductible
An annual holiday party or company picnic, with all staff invited
Your nutritionist bringing clients to a restaurant as part of their treatment plan
50% Deductible
Taking your team out to lunch to celebrate someone’s birthday
Picking up donuts to serve during a staff meeting
Stocking the office kitchen with snacks and drinks
Inviting another group practice owner to dinner to discuss a possible collaboration
Bringing coffee to the staff at a local pediatrician’s office who provides you with referrals
Meals and drinks for yourself or your employees while attending a professional conference
0% Deductible (Personal)
Coffee for yourself on the way to work
Ordering lunch delivery for yourself on a busy day
Meeting your group practice owner friend for dinner to catch up about her family vacation
At the end of the day, you are the one responsible for providing the proof that a meal qualifies as a business deduction. We recommend that when saving the receipt for your meal, you note WHO was present and WHAT business was discussed during the meal. You can keep receipts in an envelope in your desk, or snap a picture to save to a folder in your phone, but a contemporaneous record of the meal is key to getting the business deduction you’re entitled to take.
Curious about additional business deductions? Check out our self-paced course, Money for Therapists: All About Taxes.
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This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit www.greenoakaccounting.com
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