Business Meals (50% Deduction)

The 50% rule

Section 274(n) limits the deduction for food and beverages to 50% of the cost. The 100% temporary deduction available in 2021-2022 for restaurant meals expired and has not been extended. Most business meals — client meetings, working lunches, meals while traveling away from home — are 50% deductible.

When meals are 100% deductible

Limited categories remain 100% deductible: meals provided as compensation included in the employee's wages, employer holiday parties open to all employees, meals provided to the public for promotional purposes, and meals reimbursed under an accountable plan and reported as taxable wages to the employee.

Substantiation

Records must show amount, date, place, business purpose, and business relationship of attendees. The "$75 rule" (no receipt required for meals under $75) is often misapplied — you still need the date, place, business purpose, and attendees, just not the physical receipt.

Entertainment is not deductible

TCJA disallowed deductions for entertainment expenses — concerts, sporting events, golf — even when they are business-related. Meals consumed at an entertainment event remain 50% deductible only if separately stated and ordered (not bundled into a "skybox" package).

Per diem alternative

Self-employed taxpayers traveling away from home may use the federal meal-and-incidental per diem rate (varies by city) instead of actual meal costs. The 50% limit still applies. The per diem is simpler than collecting receipts but cannot be used for lodging by self-employed individuals — only employees can take the lodging per diem.

Documentation that survives an exam

An IRS examination of this deduction will request three things: proof of payment (bank or card statement), proof of the underlying transaction (invoice or receipt), and proof of business purpose (a contemporaneous note or calendar entry). The first two are usually trivial to produce; the third is where most filers fall short. Capturing business purpose at the moment of the expense — a one-line note in your bookkeeping software or a category and memo on the receipt-capture app — converts a generic charge into a documented deduction that will withstand scrutiny three to six years later when memory has faded.