Tax deduction rules for self-employed business meals
What do dry cleaning services, motels, gas mileage, and french fries all have in common?
They are all potential tax deductions for a self employed business owner.
Whether you travel for a living and rely on fast food and restaurants for sustenance or need to impress a new client over dinner at an upscale eatery, your next bite could be a tax break. Your wallet will thank you for taking the time to learn about what qualifies as a tax deductible meal expense and deduction allowances.
Qualifying Meal Expenses
Generally, qualifying meal expenses fall under one of two categories: business meal expenses incurred while travelling away from home and meal expenses not incurred while travelling.
In order for a meal to qualify as a business expense while not travelling, at least one other person associated with the business must be present. A taxpayer may choose either to use the standard meal allowance or actual cost method to determine expenses.
Methods of Determining Meal Expenses
Taxpayers may choose to take the standard meal allowance which is used to figure the expense deduction for meals eaten while travelling away from home on business. Or they may deduct the actual cost of business meals.
Business meal expenses incurred while not travelling must be figured using the actual cost method.
Standard meal allowances vary by location and change from year to year; refer to Internal Revenue Service Publication 535 Business Expenses. You can remember the difference between the two methods if you keep in mind that when using the actual cost method, you calculate your deduction using the exact cost of the meal; when using the standard deduction, you use a set daily meal rate to figure the deduction.
Records to Keep
Regardless of which method is used to calculate the business meal expense deduction, the taxpayer is required to keep documentation of the expense.
The taxpayer is required to keep records of the purpose, place, and time of the business expense. Expense receipts as well as all other tax documents should be kept for at least three years after filing the tax return.