Sidney Kess

Meals are a common business expense. There is a wide range of “meals,” including wining and dining customers and clients, employee meals while traveling on business, snacks in the break room and occasional employer-paid pizza lunches, food in a corporate eating facility, and company picnics. There is considerable confusion on when some or all of meal costs are deductible. This confusion has been increased by changes made by the Tax Cuts and Jobs Act of 2017, some of which apply starting in 2018 while others take effect in 2026.

Costs That Are 100 Percent Deductible

Some meal costs have been and continue to be fully deductible.

Company events for staff. The cost of meals for recreational, social, or similar activities primarily for the benefit of employees is fully deductible. For example, the cost of picnics, barbeques, and other company events that provide food and beverages to staff and other attendees (e.g., spouses, children, etc.) is 100 percent deductible.

Meal expenses treated as compensation. If the meals are treated as taxable wages to the employee, then the employer can deduct 100 percent of the cost. This treatment results where, for example, a company reimburses employees for their meals on business trips using a nonaccountable plan.

Sales of meals. Restaurants, taverns, and other businesses that sell meals to the public can deduct all of their costs. Of course, they’re not deducting the retail price; they are writing off applicable business expenses (e.g., wages for meal preparation).

Items available to the public. Complimentary coffee in a waiting room is fully deductible.

Employer-operating eating facilities for employees. Direct operating costs—the cost of food, beverages, and labor costs (including employment taxes for employees of the facility)—are fully deductible. This assumes that the facilities are not restricted to highly-compensated employees. (But see below for a future change in this rule.)

Costs That Are 50 Percent Deductible

Some meal costs are only 50 percent limit. This is so even if employees are not taxed at all on the benefits they receive.

De minimis fringe benefits. Half the cost of meals treated as a de minimis fringe benefit are deductible through 2025 (Code §132(e)); prior to 2018 the cost was 100 percent deductible. (After 2025, the de minimis fringe benefit becomes nondeductible.) De minimis costs include food and beverages—donuts, fruit, coffee, sodas—furnished in a company break room (a company’s business premises). It also includes occasional meals or meal money provided to enable an employee to work overtime.

The Tax Court held this rule to include meals furnished by the Boston Bruins to its team and staff in meal rooms (a hotel space used for this purpose) (Jacobs, 148 TC No. 24 (2017)). The IRS recently acquiesced in the results only (AOD 2019-01; IRB 2019-8, 569; the service disagrees with the Tax Court’s standard used to determine whether the hotel premises were the team’s business premises).

Meals for the convenience of the employer on the employer’s business premises. The cost of such meals is only 50 percent deductible (Code §119(a)); there had been a full deduction allowed prior to 2018. To claim the 50 percent deduction, there must be a substantial noncompensatory reason of the employer to do this, such as the need to restrict an employee’s meal time or being on hand at all times in case of an emergency.

Recently, the IRS said an employer could not treat the meals it furnished to employees in their cubicles as meeting this requirement (TAM 201903017). The employer in this instance had no policies for any employee positions related to the discussion of confidential business information in secure environments that would require meals on the premises in order for them to properly perform their duties. In the past, some employers have shown a substantial noncompensatory business reason where there was no easy access to meals (i.e., no food delivery services available). The IRS has implied that if food delivery services (e.g., GrubHub, BiteSquad, DoorDash) are accessible to employees, this may no longer be a substantial noncompensatory business reason. In the letter ruling, the IRS said that unlimited snacks and drinks (not the meals) provided to employees, however, could be treated as de minimis fringe benefits.

Meals away from home. Meals incurred while traveling away from home are deductible, subject to the 50 percent limit. This is so whether deducting the actual cost of the meals or relying on a per diem rate. For example, the per diem meal rate for the government’s 2019 fiscal year (Oct. 1, 2018 through Sept. 30, 2019) under the IRS’s high-low substantiation method is $71 per day for high-cost areas and $60 per day in low-cost areas (Notice 2018-77). The 50 percent limit also applies whether you pay the cost directly or reimburse employees for them under an accountable plan.

Note that those in the transportation industry subject to Department of Transportation hours-of-service limitation have an 80 percent limit, rather than the usual 50 percent limit, on meal costs away from home.

Meals at entertainment events. No deduction is allowed for entertainment costs. But meals eaten at an entertainment event may be 50 percent deductible. The IRS has clarified when meal costs at entertainment events are exempt from the bar on deducting entertainment costs (Notice 2018-76). More specifically, food and beverages at a sporting event, at the theater, or other entertainment event can be deductible if:

(1) The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;

(2) The expense is not lavish or extravagant under the circumstances;

(3) The business owner or an employee of the taxpayer is present at the furnishing of the food or beverages;

(4) The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and

(5) The food and beverages are purchased separately from the entertainment.

The IRS gives these examples: A taxpayer takes a customer to a ballgame. The cost of the tickets is not deductible (it is a nondeductible entertainment expense). The cost of hot dogs and drinks at the game is deductible (subject to the 50 percent limit). But if a business pays for a suite at a basketball game that includes food and beverages, no deduction is allowed; the food and beverages are not purchased separately from the entertainment.

Costs That Are Not Deductible

Some meal costs may have a business element but that doesn’t make them deductible.

Personal meals. Just because meals have some business purpose does not allow them to be deductible. For example, attorneys who met for lunch to discuss clients’ matters could not deduct the meal costs (Moss, 80 TC 1073 (1983)). They were not away from home and there were no clients present at the meals. Daily meals, such as at these noontime meetings, are inherently personal in nature and not deductible.

Certain meals after 2025. Due to changes by the Tax Cuts and Jobs Act, starting in 2026, no deduction is allowed for the cost of:

• De minimis fringe benefits (Code §132(e)).

• Meals for the convenience of the employer (Code §119(a)).

• Food and beverages provided at a company eating facility (Code §274(o)).

Conclusion

A number of the tax rules for deducting meal costs have been changed by the Tax Cuts and Jobs Act. What hasn’t changes are the substantiation rules to support any deduction for meal costs. For example, without proper substantiation, the 50 percent deduction for meals while traveling away from home on business is lost.

Sidney Kess, CPA-attorney, is of counsel at Kostelanetz & Fink and senior consultant to Citrin Cooperman & Company.