What's the difference between a 50% and 100% meal expense?

Did you know that some of your business meals are 100% deductible? No?! Well hopefully you know that the majority of your business meals are at least 50% deductible! If both of these are new to you, I hope you were sitting down or at least holding on to a railing so you don't fall over.

It all depends on the purpose of the meal, and who benefits from it, but these are huge benefits to you as a business owner so you can minimize your tax burden and we'll walk you through it all: from the company-happy hour to a fancy dinner with your client.

Two Types of Meal Deductions

100% Deductible: A meal expense that benefits at least half of all employees, or the general public, free of charge. This can be categorized as “Employee Relations" if you are utilizing Club Capital's Chart of Accounts.

50% Deductible: A meal expense that benefits clients, partners, or just a handful of employees. This can be categorized as “Meals and Entertainment" if you are utilizing our Chart of Accounts - or something similar.

Want to read everything the IRS says about this? We already did, but here's the full read: get ready for a long read.

The best way to see how this plays out is to look at a couple of examples. See below.

Your meal deduction depends on the purpose of the meal, and who benefits from it.

The 100% Deductible Meal

Donuts and coffee provided for all your employees
Beer supplied for a Friday happy hour at the office
Food for a team meeting (at least 50% of the team must be present)
A company-wide holiday party
Food and drinks provided free of charge for the public at a promotional event
Dinner provided for employees working late (since working late benefits the company directly)

These meal expenses either benefit the whole company, the general public (at no cost - so you're not charging them), or a charity, are 100 percent deductible. If you are working with Club Capital for your monthly accounting (or have someone other than yourself helping you out in this regard) you will want to make sure you communicate these expenses to your accountant directly. These expenses can be hard to identify just by the transaction or receipt alone. To make sure you're taking advantage of these expenses, make sure you communicate these types of expenses directly to your accountant or it might be classified as a 50% deductible meal expense.

It is hard for accountants to identify 100% deductible

meal expenses by transaction or receipt alone.

The 50% Deductible Meal

The meal still needs to be work-related but it doesn't have to benefit the entire company. This expense will be categorized as "Meals and Entertainment."

Here are some of the most common examples:

A meal with a client where work is discussed (continuous lavish expenses could attract audit attention)
Employee meals while traveling (for work - not on vacation with the family!)
Treating an employee to a meal (but if it’s at least half of all employees, it’s 100 percent deductible)

The Meal Expenses That Are NOT Deductible

The good news is that the majority of all work-related meal purchases are either 100% or 50% deductible. However, there are a few exceptions. Let's take a look at some examples:

Paying for your clients’ night out but you don’t actually go with them
Paying for a client meal at a restaurant where you invite friends or spouses—the cost of your friends is nondeductible (but you can write off half the client bill - just pay for it separately).

Are you taking advantage of these deductible expenses? If you're with Club Capital, you certainly are!

Don't Miss Out!

DISCLAIMER: For questions or "what/ifs" when it comes to determining what to deduct on your business taxes, always speak with your CPA or tax accountant for what makes sense for your agency.

Our team has a wealth of knowledge of tax law and are always looking for ways help agents maximize their tax benefit and minimize tax burden. For more information on what you CAN deduct, check out our Common Expense Deduction for Agents page.