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Meal & Entertainment Deductions: Travel, Employee Meals & Office Parties Explained

Jelena Arkula
September 19, 2022
Procedures

What is the difference between meal and entertainment deductions, and why does it matter?

Mike Russo, from Less Taxing Services, LLC wrote a good, entertaining and clear guide when in comes to meals and the deduction parentage.

Quick Answer

Books LA explains that meal and entertainment expenses have varying tax deductibility percentages based on their purpose and context. For example, business meals with clients are typically 50% deductible, while meals provided to the public or donated can be 100% deductible. Travel meals for individuals subject to Department of Transportation (DOT) rules may be 80% deductible, whereas personal meals consumed at one's tax home are generally not deductible. This complexity underscores the importance of correctly classifying these expenses for accurate tax reporting.

 

“When I talk to clients about the need for professionals being involved in their finances, I describe a box of donuts.

That simple box of donuts can be coded 10 different ways (another group came up with 11 or 12, but I can’t find that list…some of them were WAY off the wall, though, so we’ll stick with 10). Once coded, the donuts could then show up on at least 7 different tax forms. (Schedule C, 1120, 1120S, 1065, 990, Form 2106 and Schedule A)

It’s never as simple as just buying a box of donuts.

 

– No Deduction – I buy a box of donuts and eat the whole thing while in town at my tax home. (Note, this would be 50% deductible if you were out of town traveling for business.)

– 50% Deductible Business Expense – I buy a box of donuts and share them with the 10 people in my first sales meeting of the day

– 50% Deductible Non-Reimbursed Employee Expense – Same as above, but now I’m an employee and my employer requires me to supply food in my business meetings but doesn’t reimburse me for it. (While this is still 50% deductible, it’s an itemized deduction and won’t even begin to count until you’ve crossed the threshold of 2% of your income.)

– 100% Deductible Business Expense – I buy a box of donuts, takes them to my first sales call and leave them in their lobby by the coffee for all to enjoy…even people off the street.

– 100% Deductible Non-Reimbursed Employee Expense – Same as above, but now I’m an employee and my employer requires me to supply food in my business meetings but doesn’t reimburse me for it. (While this is still 50% deductible, it’s an itemized deduction and won’t even begin to count until you’ve crossed the threshold of 2% of your income.)

– 80% Deductible Business Expense – I buy a box of donuts that I use as breakfast and lunch while driving my big rig across the country. (I’m subject to DOT rules.)

– 80% Deductible Non-Reimbursed Employee Expense – Same as above, but now I’m an employee and my employer don’t have any provision for meals while I drive. (While this is still 50% deductible, it’s an itemized deduction and won’t even begin to count until you’ve crossed the threshold of 2% of your income.)

– 100% Deductible Personally – I buy a box of donuts and donate them to the church bake sale. (This is deductible, but it’s only on the personal return…even if you did this for a Corp, it would still pass through to the shareholders and wouldn’t be deductible at the corp level.)

– 100% Deductible as COGS – I buy a box of donuts to resell.

– 100% Deductible as an Ordinary and Necessary Business Expense – I buy a box of donuts to use as a prop during a tax talk where I discuss the ways a box of donuts can be coded. 🙂

Now, who wants a donut? :)”

 

The 33 Best Donut Shops in America –Huffington Post

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 Jelena Arkula

Frequently Asked Questions

1 What are the different tax deductibility percentages for meal expenses?

The page illustrates various deduction percentages for meal expenses, including 0% (personal consumption at tax home), 50% (business meetings, non-reimbursed employee expenses), 80% (DOT-regulated travel meals), and 100% (meals left for public enjoyment, resold, or used as props). The specific percentage depends on the context and purpose of the meal.

2 How does the categorization of a meal expense impact its tax treatment?

The categorization of a meal expense significantly impacts its tax treatment, determining the applicable deduction percentage and on which of the "at least 7 different tax forms" it might appear. For example, a box of donuts can be coded in multiple ways, from a non-deductible personal expense to a 100% deductible business expense, depending on its use.

3 What is the difference between a deductible business meal and a non-reimbursed employee meal expense?

A deductible business meal, like sharing donuts in a sales meeting, is 50% deductible as a direct business expense. A non-reimbursed employee meal expense, where an employee pays for required business meeting food without reimbursement, is also 50% deductible but as an itemized deduction, subject to a 2% of income threshold.

4 Can personal meals ever be tax deductible?

Generally, personal meals eaten at your tax home are not deductible. However, if you are out of town traveling for business, a meal could be 50% deductible. Additionally, donating food, such as donuts to a church bake sale, can be 100% deductible on a personal return.