The business meal deduction - a freelancer's guide
Many freelancers and small business owners mistakenly believe that in order for a meal to count as a business meal tax deduction, it has to have white tablecloth with a french waiter serving you le plat du jour. Not true.
All types of self-employed -- not only consultants and salespeople -- should claim business lunches, as long as they know which lines not to cross. In this guide, we’ll cover everything you need to know about writing off meals -- what to claim, what to avoid, and how to keep records.
Wait, didn’t the rules change?
The 2017 Tax Cuts and Jobs Act has left some folks confused about the rules of deducting business meals. Let’s clear that caveat up first.
The rules for the business meal deduction haven’t changed for 1099 contractor taxes-- food and beverages continue to be tax deductible. The Tax Cuts Act cut client entertainment deductions, such as baseball tickets or a round of golf. Meals in 2020 are still 50% tax deductible for anyone self-employed.
So, what counts as a 'business meal'?
The IRS guidance on exactly what distinguishes a business meal from a regular lunch by noting that “the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact.” The ambiguity arises from the phrase “similar business contact”, so let’s break it down.
Taking a client out for lunch ✅
This one’s obvious. If you go out for lunch with a client, work will come up in the discussion. You don’t even need to pay for the other person’s meal. The fact that you are eating out, instead of bringing lunch from home, means that the expense is out of the ordinary, and therefore tax deductible.
Wooing a prospective client ✅
Building and maintaining your network is critical to maintaining a continuous sales pipeline. Past coworkers, friends in similar industries, and other colleagues could all eventually turn into prospective clients or introduce you to one. You don’t need to sign contracts at the table for lunch to count as a tax deduction.
Lunch with a coworker ✅
Just because we’re self-employed, doesn’t mean we don’t have coworkers. A lunch with someone in a similar line of work is bound to help you learn about the industry and catch up on best practices. It’s a write-off!
Snacks consumed while working ❌
The rule of thumb is this: if eating on the job is NOT a requirement for employment, then it is NOT a legitimate business expense. For example, if you’re a security guard paid on a 1099 contract and you’re not supposed to leave your post all day, then the snacks you buy are tax deductible. If you’re merelya busy professional trying to save time between meetings, consider it a personal expense.
An in-depth business discussion with anyone ✅
Don’t miss this one! It’s very important to stay on top of the latest news and trends in your industry. Even if you’re meeting with someone who isn’t an actual client or a potential referral, if you learn new things about your space that help you do a better job at work, then that’s a tax write off. You’ll want to make sure, though, to obtain some record of what was discussed in case of audit -- like a followup email, or notes!
Sorry, folks. It’s very unlikely that your grocery bill is a tax deduction - even if you have a home office. You have to feed yourself to survive, and buying groceries isn’t considered a luxurious way to do that. It’s not like business forced you to have to spend more to feed yourself -- as is the case with a restaurant.
Meeting with a potential referral ✅
Many freelance work platforms offer rewards for getting others to sign up. Upwork, Uber, and others can pay up to $500 per referral. That’s serious money! When you grab a meal with a friend who might be interested in signing up as your referral, that’s a tax write-off.
Getting lunch by yourself rarely counts as a business meal. Even if you work while eating or on a business call. This includes getting a latte while working at your local coffee shop. If you’re alone, it’s not deductible.
What kinds of records do I need?
Contrary to popular belief (see: The Great Myth of Paper Receipts), you don’t have to hoard restaurant receipts year-round in order to claim the business meal tax deduction.
Bank and credit card statements suffice as proof of purchase. Just make sure you have some other digital breadcrumb in case of audit, like a calendar event, an email thread, or some notes.