One common tax myth is the belief that you can deduct the full cost of business meals. This misconception can lead to incorrect deductions and potential issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.

Origin of the Myth

• Misunderstanding of Business Expenses: Many people assume that all business-related expenses, including meals, are fully deductible.

• Changes in Tax Law: Recent changes and temporary provisions can cause confusion about what is deductible.

Reality of Deducting Business Meals

• 50% Deduction: Typically, only 50% of the cost of business meals is deductible. This applies to meals with clients, employees, or business partners, provided that the expenses are ordinary and necessary and directly related to the active conduct of business.

• Temporary 100% Deduction: For tax years 2021 and 2022, the Consolidated Appropriations Act allowed a temporary 100% deduction for meals provided by restaurants to help support the food service industry during the COVID-19 pandemic.

IRS Guidelines on Business Meal Deductions

• 50% Limit: Most business meals are only 50% deductible.

• Documentation Requirements:

• Date and Location: Record the date and location of the meal.

• Business Purpose: Note the business purpose and the names of attendees.

• Receipts: Keep receipts for all meal expenses to substantiate your deduction.

• Exceptions: Certain meals may be fully deductible, such as those provided to employees for the convenience of the employer (e.g., meals provided during meetings or training sessions).

Why the Myth Persists

• General Misconceptions: Many taxpayers believe that all business-related expenses, including meals, should be fully deductible.

• Anecdotal Advice: Misleading information and advice from non-professional sources perpetuate the myth.

Avoiding the Pitfall

• Understand the Rules: Clearly understand the IRS rules for deducting business meals.

• 50% Deduction: Be aware that most business meals are only 50% deductible.

• Temporary 100% Deduction: Recognize the temporary provision for 2021 and 2022, if applicable.

What You Need to Do

• Keep Detailed Records: Maintain accurate records of all business meal expenses, including receipts and documentation of the business purpose.

• Apply the 50% Rule: Apply the 50% deduction rule to most business meal expenses.

• Stay Updated: Stay informed about any changes in tax law that may affect the deductibility of business meals.

Consulting a Tax Professional

• Seek Professional Advice: Consulting a tax professional can ensure you correctly identify and claim eligible business meal deductions.

• Accurate Records: A professional can help you maintain proper documentation and navigate the complexities of deducting business meals.