Meals with clients, meals while traveling and food provided to employees are common business costs. Their tax treatment depends on the type of meal and the records you keep. The IRS covers the rules in Publication 463.

The general 50% limit

Business meals are generally deductible at 50% of their cost, including tax and tip, when:

  • The expense is ordinary and necessary in carrying on your business
  • It is not lavish or extravagant under the circumstances
  • You or an employee are present
  • The food or drinks are provided to a current or potential business customer, client, consultant or similar business contact, or are part of business travel

Entertainment is not deductible

Since the 2017 tax law changes, expenses for entertainment, amusement or recreation, such as tickets to sporting events or golf, are generally not deductible, even if business is discussed. Food purchased separately at an entertainment event can still be a 50% deductible meal if it is invoiced separately.

Meals while traveling

When you travel away from your tax home overnight for business, your meals are generally 50% deductible. You can deduct actual costs with receipts, or in some cases use per diem rates for meals instead. Special higher limits apply to workers subject to Department of Transportation hours-of-service rules, as explained in Publication 463.

Exceptions that can be fully deductible

Some meal costs are not subject to the 50% limit, for example:

  • Recreational, social or similar activities primarily for employees, such as a company holiday party open to all staff
  • Meals included in compensation and reported as taxable wages
  • Food sold to customers in the ordinary course of business

The rules for meals provided on the employer's premises have changed over time; check current guidance with your preparer.

Records to keep

For each meal, keep:

  1. The receipt showing amount, date and place
  2. The business purpose
  3. Who attended and their business relationship

Writing the attendees and purpose on the receipt image or in the expense app at the time is the simplest habit. See travel and meal expense records for a full checklist.

In your books

Set up separate accounts for client meals, travel meals, employee events and entertainment. Mixing them into one "meals and entertainment" account forces your preparer to guess which part is deductible. We map each account to its tax treatment, which shows up on returns as a book-to-tax difference; see our chart of accounts guide.

Setting up your chart of accounts for meals

Because different meal categories can have different deduction percentages, use separate accounts instead of one "Meals and entertainment" bucket:

  • Meals with clients or prospects: generally 50% deductible when business is discussed and the other requirements are met
  • Travel meals: meals while traveling away from home overnight on business
  • Company events: holiday parties or picnics for employees in general
  • Meals provided to the public or included in employee compensation
  • Entertainment: tickets, golf and similar costs, which are generally not deductible

At tax time, your preparer can apply the correct percentage to each account rather than reviewing every receipt. Record the attendees and business purpose on each receipt or in the transaction memo; Publication 463 explains the substantiation rules.

Key terms

Definitions for terms used in this guide, from our small business glossary:

  • Ordinary and Necessary Expenses: Ordinary and necessary is the basic test a business expense must meet to be deductible.
  • Chart of Accounts: A chart of accounts is the organized list of every account a business uses to record transactions in its general ledger.