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Meals and Entertainment Expenses

What You May Deduct

Meal Expenses
You may deduct 50% of costs for meals while traveling on business. The two ways to determine meal costs are:

  • Actual costs for meals
  • Use the standard IRS meal allowance
With either method, you must still keep receipts and track actual costs. You can find the standard meal allowance (called the "Meal and Incidental Expense" rate (M&IE) for most major U.S. cities in IRS Publication 1542.

Entertainment Expenses
If you entertain clients or customers, you may deduct up to 50% of these costs. Be sure to keep good records on who was present, the dates and times, and the reasons for the entertainment and business discussions that took place.

  • General Guidelines on Deducting Meal/Entertainment Expenses
  • The expenses must be "ordinary and necessary" business expenses
  • The expenses must meet one of two tests:
    • The directly related test applies if you can show that the main purpose of the activity was business. For example, if you are meeting with clients in your office, meal expenses during the meeting would probably meet the "directly related" test.
    • The associated test applies if the expense is associated with (along with, in conjunction with)a "substantial" business discussion. For example, if you had a meeting with clients at a restaurant and then you take the clients to the theater, this might satisfy the "associated" test.

      What You May NOT Deduct
      You may not deduct costs of meals and entertainment for personal reasons while traveling. If the trip is "primarily" business, most expenses will be considered as business expenses. If the trip is "primarily" personal and you conduct some minimal business, only those costs directly related to the business you conduct may be deductible.

      Where to Show these Expenses

      • For sole proprietors and single-member LLCs, show these expenses in the "Expenses" section of Schedule C
      • For partnerships and multiple-member LLCs, show these expenses in the "Deductions" section of Form 1065
      • For corporations, show these expenses in the "Deductions" section of Form 1120.

      Special Notes

      • You may use per diem rates for figuring travel expenses within the U.S., based on IRS Publication 1542.This publication lists per diem rates for most major cities in the U.S. and updates these rates periodically.
      • Note that the 50% limitation also applies to the standard meal allowance When you list all meal costs in the appropriate line in Schedule C, for example, the 50% limit is then applied, so that the total of all meal costs is reduced by 50%.

      Disclaimer
      This article presents general information; I am not a tax attorney or tax preparation specialist. Refer to IRS publications and refer questions to your tax consultant.

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