Deducting Meal Expenses for Business Travel

When you're on the road, there's nothing more enjoyable than a good meal. But the food will likely taste even better if you can deduct the cost from your taxes. For many years, meal expenses incurred while traveling for business were only 50% deductible. However, during 2021 and 2022, business meals in restaurants are 100% deductible. This temporary rule is intended to help restaurants recover from the COVID-19 pandemic. As a result, there has never been a better time to eat well while traveling for business.

What Is Business Travel?

You may deduct your meal expenses while traveling for business. For tax purposes, business travel occurs when you travel away from your tax home overnight for your business. You don't have to travel any set distance to get a travel expense deduction. However, you can't take this deduction if you just spend the night in a motel across town. You must travel outside your city limits. If you don't live in a city, you must go outside the general area where your business is located. You must stay away overnight or at least long enough to require a stop for sleep or rest.

Deducting Business Meals Alone or with Customers

The Tax Cuts and Jobs Act (TCJA) eliminated all business deductions for "entertainment, amusement, or recreation." (IRC Sec. 274(a)). There was concern that this meant that all business-related meals with customers would no longer be deductible under the TCJA. However, the IRS clarified that business-related meals and beverages are still deductible as long as the meal and beverage costs are:

• not lavish or extravagant under the circumstances
• you or an employee is present at the meal, and
• the food or beverages are provided to you or a business associate. (IRS Reg. 1.274-12).

Thus, you may deduct (1) meals you eat alone while traveling on business or (2) meals with business associates while traveling. Business associates include current or potential customers, consultants, clients, or similar business contacts. You (the business owner) or an employee must be present at the meal, but you don't have to eat anything if a business associate does so. For more information, see The Business Meal Deduction Under the Tax Cuts and Jobs Act.

You may not deduct the cost of meals for your spouse while traveling unless your spouse is your employee and travels with you for a bona fide business purpose. The same goes for your children or other dependents.

Calculating Your Meal Expenses

There are two ways to calculate your meal expense deduction: You can keep track of your actual expenses or use a daily rate set by the federal government.

Deducting Actual Meal Expenses

If you use the actual expense method, you must keep track of what you spend on meals (including tips and tax) en route to and at your business destination. When you do your taxes, you add these amounts together and deduct half of the total.

Example: Frank goes on a business trip from Santa Fe, New Mexico to Reno, Nevada. He gets there by car. On the way, he spends $200 for meals. While in Reno, he spends another $200. His total meal expense for the trip is $400.

If you combine a business trip with a vacation, you may deduct only those meals you eat while on business—for example, meals you eat while attending business meetings or doing other business-related work.

You do not necessarily have to keep all your receipts for your business meals, but you need to keep careful track of what you spend, and you should be able to prove that the meal was for business.

Using the Standard Meal Allowance

When you use the actual expense method, you must keep track of what you spend for each meal, which can be a lot of work. So the IRS provides an alternative method of deducting meals: Instead of deducting your actual expenses, you can deduct a set amount for each day of your business trip. This amount is called the standard meal allowance. It covers your expenses for business meals, beverages, tax, and tips. The amount of the allowance varies depending on where and when you travel.

The standard meal allowance is based on what federal workers are allowed to charge for meals while traveling and is therefore relatively modest. The amount is revised each year. You can find the current rates for travel within the United States on the Internet at www.gsa.gov (look for the link to "Per Diem Rates"). You can also find it in IRS Publication 1542. The rates for foreign travel are set by the U.S. State Department and can be found at www.state.gov. When you look at these rate listings, you'll see several categories of numbers. You want the "M & IE Rate"—short for meals and incidental expenses. Rates are also provided for lodging, but these don't apply to nongovernmental travelers.

If you use the standard meal allowance, you must use it for all of the business trips you take during the year. You can't use it for some trips and then use the actual expense method for others. For example, you can't use the standard allowance when you go to an inexpensive destination and the actual expense method when you go to a pricey one.

Because the standard meal allowance is so small, it's better to use it only if you travel exclusively to low-cost areas or if you are simply unable or unwilling to keep track of what you actually spend for meals.

To learn more about what you can deduct from business trips, see Nolo's Travel Deductions area.

Limits on Meal Expense Deduction

Ordinarily, you may only deduct 50% of the total cost of a business meal. For example, if a meal costs $100, you may deduct $50. Or, if you use the standard meal allowance, you may deduct on your tax return 50% of the allowance amount.

However, in the wake of the economic devastation caused to restaurants by the COVID-19 pandemic, Congress enacted a special rule for 2021 and 2022. During these years, you may deduct 100% of the cost of business meals and beverages purchased from restaurants. (IRC 274(n)(2)(D)). This is intended to help restaurants get back on their feet.

For these purposes, a "restaurant" is a business that prepares and sells food or beverages to retail customers for immediate consumption. However, you need not eat the food at the restaurant to get the 100% deduction. You can order restaurant take-out while traveling and deduct the full cost.

Restaurants do not include businesses that predominantly sell prepackaged food or beverages for later consumption—for example, grocery stores, liquor stores, drug stores, specialty food stores, and vending machines. Thus, food or beverages purchased from these places while traveling is still subject to the 50% limitation.

Keep these rules in mind if you're on the road and looking for take-out. If you get a sandwich to-go from a restaurant, the cost is 100% deductible. If you get it at a grocery store, it's only 50% deductible.

Hotel room service should qualify for the 100% deduction. But food or beverages you grab from a hotel minibar should be subject to the 50% limit.

Because of these rules, you should separately track your total costs for meals and beverages purchased from restaurants and those for meals from other places like grocery stores and liquor stores.