How Can I Maximize Meals and Travel Deductions?

Posted on May 10, 2023

This is part of a bigger series that we did for our Ultimate Guide to Maximizing Business Deductions and Write-Offs. Be sure to check out everything that we discussed in that.

Today we are going to be focusing on two key parts, meals and travel.

What Is A Meal Expense?

Starting in 2018, entertainment expenses are no longer deductible, but the meals around the entertainment can be expensed assuming the amount can be separated from the entertainment cost.

  • Dining With a Prospect, Client, Vendor, etc
    • 50% Deductible
  • Dining When Traveling
    • 50% Deductible – Must be overnight and outside of your normal commute.
  • Dining With Staff
    • 50% Deductible
  • Office Meals / Food
    • 50% Deductible
  • Company Parties / Presentations / COGS
    • 100% Deductible

What Planning Opportunities Exist Around Meal Expenses?

  • Find a Business Purpose to Your Meetings
    • From now on, these people are sources of business, so start talking business and asking for referrals over meals and beverages. Are you grabbing dinner with a client, or potential client that happens to be a friend or family member? Think about the purpose of that meal.
  • Country Club
    • A country club membership is NOT Deductible but the meal and drink portion would be, if it was for a business purpose.
  • Solo Meals and Drinks
    • Going through the drive thru at Starbucks on your way to work is not a business deduction. However, if you plan a business meeting around that stop or you are on an overnight business trip, then it would be.

What Is A Travel Expense?

Expenses incurred while you or your employees are away from home on business may be deductible. An individual is away from home if he or she is required to be away from his or her tax home substantially longer than for an ordinary day’s work and he or she needs to get sleep or rest to meet the demands of the work while away from home. The tax home is the entire city or general area in which an individual regularly works, no matter where he or she lives.

  • Travel Costs Include:
    • Transportation (Automobile, Airplane, Train, Boat)
    • Lodging (Hotel, AirBnB, etc.)
    • Rental Car, Tolls, Parking, Bus, Taxi, Uber, etc.
    • Meals (50%)
  • Travel Reasons Include:
    • Meeting with Vendor
    • Meeting with Client
    • Corporate or Board Meeting
    • Attending a Conference
    • Visiting a Rental

The Rules:

  1. Business Day: In order for a day to be considered a business day, the majority of the day (4 hours and 1 minute) has to be spent on business.
  2. Overnight: To be in “travel status” you must be away from your principal place of business overnight.
  3. Travel Days: Days you are traveling are considered business days if business days exceed personal days. For INTL trips greater than 7 days this turns to >75% business.
  4. Weekends and Holidays: If you have a weekend or holiday sandwiched between two business days they are considered business days even if spent personally.

What Planning Opportunities Exist Around Travel Expenses?

  • Business Days on Personal Trip
    • You can deduct food and lodging on business days even if your trip does not include enough business days to count as a business trip.
  • Plan Out Your Trips
    • When you have travel plans, plan ahead to see if you can make that into a deductible business trip. Be sure you keep a diary of the business days. If you have family (not involved in the business) traveling with you, their costs are not deductible.
    • Example: You have a 3 day conference in Dallas. You and your family drive from Milwaukee to Dallas. It takes 2 days to drive each way and you also spend 5 days sightseeing (personal). Your trip is majority business (7 of 12 days) and therefore you deduct 100% of transportation and lodging and meals (50%) for the 7 business days for yourself only.

Again, this is just a nibble into some planning opportunities to help you maximize your business deductions. I want to encourage you to check out our full series on this in our Ultimate Guide to Maximizing Business Deductions and Write-Offs to also understand what you need to ensure you are doing to protect yourself and provide full documentation as well.

Remember, do not get greedy and always do the sniff test. If I was explaining this business purpose to an IRS auditor, would it sound legit?

 

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