Meals and Entertainment, Per Diem Expenses

published August, 2007

Business meals and entertainment are deductible only if they are: 

  1. Directly Related or associated with the active conduct of your trade or business, 
  2. not lavish or extravagant, and 
  3. incurred while you or your employees are present at the meal. 

You need to be able to prove this expense, if you’re audited, so after every meal, flip the receipt over and write down who you ate with and what business was discussed. Just because you and people from work like to eat out together, doesn’t make it deductible—you have to have a clear business purpose.

Meals and entertainment does not include paying for a “facility” like a hunting lodge or gym. Gym dues are not deductible, not even 50% deductible. Not even if you’re a model and you “need to keep up your appearance” for work. Really. Chambers of commerce are generally OK, I guess because by IRS definition, the Chamber of Commerce is not entertaining.

Unless you have something to do with the Department of Transportation, all your meals are only 50% deductible, including meals away from your “tax home” – the general area where you do business. There is nothing special about traveling that makes the meals 100% deductible. If you take one client to dinner it is the same 50% as when you take 7 clients to dinner. Bummer.

If you go down the street from your office at your lunch break to Wendy’s, even if you work before and after lunch, it probably is 0% deductible. Even if you needed to eat to continue to work.

Meal expenses for yourself alone while traveling for business can be deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties, and is away from your “tax home.” The deduction is limited to 50% of the expense paid (I guess they figure you were going to eat anyway). You need a receipt to prove the expense if you’re audited.

I imagine that many people lost receipts while traveling for business, so there is a standard meal allowance while traveling called the Per Diem method. The meal rate is different in different cities. Look in Publication 1542 or search at for CONUS in the US, and for foreign Per Diem rates (click on the green box). The dates on the tables tend to run October thru September, and they change. You need to check the tables for current information, but recently San Francisco , Las Vegas, Seattle and Chicago are $64/day, Oakland, Houston, and Santa Fe are $59, Paris is $156. If your city isn’t listed on the table, the rate is $39. Per Diem may also include a travel expense, but we’re only looking at meals in this issue. By using the Per Diem method, you don’t get away from any substantiation requirement, just the reporting is different.

Have I mentioned getting a receipt for meal deductions? To be an audit worthy substantiation, we need restaurant name and location, date, number of people served, who was there, and what business purpose the meal served. Oh, and the amount would be good too.

“Extravagant” mostly means inappropriately costly for the business purpose. Don’t go to Chez Panisse with your “client” on your anniversary.