If you are self-employed, you can claim your business lunches. It’s not reserved for salespeople and consultants, and it doesn’t mean you have to eat out at fancy restaurants either. The key factor is knowing what counts. How do you know what you can claim, what you cannot claim, and how to keep accurate records.
“Business Meal” – What counts?
The rules surrounding business meals become confusing with the 2017 Tax Cuts and Jobs Act. Actually, there were now new restrictions on what would count. The cut was for entertainment expenses, not meals. Things like a round of golf or concert tickets are no longer deductible, but meals remain a tax deduction. The question now remains how you can take the business meal deduction. According to the guidelines from the IRS, a business meal includes “food and beverages” that are provided to a customer, client, consultant, or other business contacts. That sounds a bit ambiguous, so what really counts?
Business Meal Deductions Include:
- Taking a current client out for lunch. If you have lunch with a client, work is bound to come up during your discussion. You don’t even have to pay for their meal.
- Courting a potential client. Maintaining your business means you consistently and constantly build and maintain your network. Friends and former coworkers in similar industries could turn into clients, or they could introduce you to prospective clients. You are not required to sign a contract with someone at the dinner table to claim a business meal.
- Brunch with a coworker. If you are self-employed or a freelancer, a coworker can be anyone in your line of work. Visiting with them about the scope of your work over a meal can help you learn more about your industry and best practices.
- Networking opportunities. To be successful, you need to stay up on the top news and trends in your field or industry. Meeting with other professionals also provides you with a way to exchange tips for growing your business. This can be a great time for obtaining referrals. It may mean lunch with a friend or neighbor, even a family member.
Make sure to keep notes on what types of things were discussed during the meal. Sending a follow-up email or jotting down some notes is a great proof of the meal and topics covered. This way, if you are audited, you are covered.
Business Meal Deduction Doesn’t Include:
Although the business meal deduction is rather broad, it doesn’t include every type of food consumed on the job. These may seem obvious, but they are not qualified deductions.
- On-the-job snacking. The basic rule of thumb is that if your eating at work isn’t required for employment, it’s not deductible. So, if you are working as a security guard on contract, and you cannot leave your post at all, any snacks you purchase are tax-deductible. But if you are just busy working and grabbing a bite to save time between meetings, it’s only considered a personal expense, but it is not a business deduction.
- Stocking a home office with food. Unfortunately, your grocery bill is not going to be deductible. Even though you work from home as a freelancer or a self-employed individual, stocking up your home office isn’t a tax deduction.
- Grabbing lunch on your own. Even though you are working, grabbing a meal by yourself isn’t going to count as a business meal. What if you make a business call while you are dining alone? Nope. It’s not going to count. The rule of thumb is that if you are alone, even if you’re working at the local coffee shop, it’s not deductible.
What is the temporary 100% deduction for restaurant meals?
If you’re ready to take your clients out, now is the time to do it. However, there is one thing to keep in mind. For just the 2021 and 2022 tax years, business meals at restaurants are 100% deductible. It is part of the Consolidated Appropriations Act of 2021, which became part of the various COVID relief measures. The Act helps restaurants heavily affected by the pandemic. Before the pandemic, business meal deductions had a cap of 50%. So take advantage of the 100% deduction while you can.
How to Keep Records for Business Meal Deductions
In past years, you had to keep all your receipts to prove every visit to a restaurant. If you didn’t have a receipt, you didn’t get to claim it. Thanks to the digital age and modern technology, you no longer have to keep paper receipts. For the IRS, credit card and bank statements are adequate. Don’t forget, though that you’ll need the follow-up emails or some sort of notes about your discussions.