Business Meal Deductions
There are few deductions that are as open to questions as business meal deductions. The issue revolves around just exactly what makes a meal a business expense and not merely the necessary act of eating.
The key question involved in understanding business meal deductions is what makes the meal a business transaction and not simply the necessary act of eating. The issue is a little more clear cut when a person is traveling on a business related activity. The idea of traveling away from the employee’s home means that he is not able to take his meals in the normal fashion that he would if he were not traveling. Therefore, he is forced to spend money that he would, most likely, not have spent otherwise. Travel expenses include business meal deductions and they can be actual expense or they may use published per diem schedules.
The per diem schedules that govern the amount of allowable meal deductions take into consideration the cost of living variations in different sections of the country. There is a higher per diem allowance when you travel on business to an area with higher expenses. The advantage of using the per diem amount is that you do not have to keep any records or worry about saving receipts. In many cases, travel expenses and meal expenses are reimbursed by the employer. Of course, you can only claim non-reimbursed expenses as a deduction.
When you are not traveling, the criteria for business meal deductions is a little less clear. The general rule is that a meal becomes a business meal when it is shared with a client or business associate and the purpose of the meal is to foster a business relationship of some type. It is not going to work to consider a meal a business meal just because you are reading a report while waiting to be served. The presence of that business associate is going to be necessary in most cases to establish the business purpose.
Interestingly enough, it is not really necessary that business actually be transacted during the meal. Usually, the presence of the client or the business associate establishes the business potential of the meal and this is enough to qualify it for the deduction. It will be very important that detailed records are kept for such affairs that establish not only the actual expense, but the names of the people present in order to establish that the meal at least was conducive to business being transacted.
The business meal deduction is limited to only 50% of the actual expense. This is one of the more sensible provisions in a tax code that sometimes appears to be totally adverse to logic. After all, eating is a necessary thing and everyone must do it anyway. Even the business meal gets this basic human need met and so only half the cost of the meal is considered a business expense, the other half is simply getting fed.