Basic Principles for Meals Deduction

Taxpayers can deduct meals that are not lavish or extravagant for which they or their employees are present at the furnishing, subject to some limitations covered in this section. Unlike the deductibility of entertainment expenses, the deductibility of meals has remained consistent and unchanged by the provisions of the TCJA. However, Congress temporarily allowed taxpayers to deduct 100% of business meals purchased from a qualified restaurant for the 2021 and 2022 tax years to provide relief to the restaurant industry during the COVID-19 pandemic. For the 2023 tax year, this provision is no longer in effect. Taxpayers must adhere to the general rules as follows.

50% Deduction Limit for Business Meals

Taxpayers are generally subject to a 50% deduction limit for business meals. Such meals include those for business meetings and while traveling for business. As with other business expenses, meals are deductible only if they are ordinary and necessary. The IRS clarifies that meals are ordinary if the expenditure is common in the trade or business in which the taxpayer engages. Furthermore, the IRS distinguishes meals as necessary when appropriate for the business. 

Note: This clarification is helpful, as some might interpret the term necessary to be synonymous with required. The IRS explicitly states that a meal does not necessarily have to be a requirement for it to be a necessary expense to qualify for the deduction. 

The meal costs subject to the 50% limit include food and beverage and any tax or tips the taxpayer incurs on said purchase. Conversely, the cost of traveling to and from the meal location is not included in the meal cost subject to the 50% limit.

Business entertainment may include food and beverage at an event. The meal is only deductible if separately stated on the invoice or is otherwise billed independently from the rest of the entertainment expense.

Practitioner Planning Tip

Because the deductibility of meals during entertainment relies on the explicit statement or separation of the cost of food and beverages from the other entertainment costs, practitioners should relay the importance of maintaining records and documentation to their clients to support such deductions. Taxpayers with copies of invoices or itemized receipts can better defend their positions if challenged by the IRS regarding these expenditures.

Exceptions to the 50% Limit

The meal cost is fully deductible if the taxpayer meets any of the following criteria.

• The cost of meals that taxpayers included as compensation for their employees as wages
• Reimbursed meal expenses from an employer (provided the employer did not include them in the taxpayer’s wages as compensation) or other individuals (if the taxpayer can substantiate them)
• Meals a taxpayer provides for their employees during events such as holiday parties or other social gatherings
• Meals at functions that the taxpayer makes available to the general public, which would not include employees or an exclusive list of guests
• Meals that the taxpayer sells to customers
• Meals a taxpayer pays a non-employee as compensation, except for expenses that were or would be reported on an information return under Chapter 61, subchapter A part III of the tax code
• Meals that the taxpayer pays or reimburses for an employee as part of their moving expenses provided the taxpayer included them in the employee’s taxable wages
• Meals that the taxpayer provides to specific commercial crew members or on particular oil or gas platforms or drilling rigs (see §274(n)(2)(C) for further details)

The above text is adapted from the 2023 University of Illinois Federal Tax Workbook, Chapter 3: Independent Contractors.

Sources

• IRC §274(k)
• Consolidated Appropriations Act of 2021, PL 116-260, §210 (congress.gov)
• IRS Pub. 463, Travel, Gift, and Car Expenses (irs.gov)
• IRC §274(n)(2)

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