Photo by loop_oh on Flickr.com
I was working on a client’s tax return and he had a whole lot receipts for business meals. A whole lot. I do a lot of tax returns and I’m pretty familiar with claiming meal expenses. This guy wasn’t in one of the jobs that I normally associate with lots of meal expenses – so I had to ask him about it.
He told me, “Well yeah, I own my own company and my wife helps me and so we go out to dinner together all the time and we talk about work so I write it off as a business expense.”
Here’s the problem – that’s not going to fly with the IRS. If you are just going out to dinner with your spouse, even if you do nothing but talk about business – well then, it’s not a deductible business expense.
I deal with this issue all the time. Heck, my own husband will say, “Hey we talked about business, you can deduct our dinner!” And yes, my husband often gives me excellent business advice during dinner (he’ll read this blog post so I have to say that) but I still can’t deduct having dinner with him for business purposes. (As smart as he is at business, he stinks at taxes.)
Here’s the IRS rule: “Generally you cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose for providing the entertainment.”
So, I can bring my husband, Mark, along if I’m entertaining a client who needed to bring her husband along as well. For example, someone is in from out of town and wouldn‘t want to leave her husband all alone in the hotel. But if I’m just having dinner with my husband alone – no deduction.
There are lots of other rules about claiming meals as well. You’re supposed to record the expense “contemporaneously”. That’s a fancy way of saying you should write down on the receipt who and why. For example, Helene is one of my advertising people. We both like the grand slam breakfast so I’ll meet her at Denny’s. On the receipt I would write, “Helene, advertising.” Quite frankly, Helene is the only person I meet at Denny’s so if I’ve got a Denny’s receipt, I know who I was meeting and what we were talking about. But a Bread Company receipt? Well I probably meet someone there once a week. If I don’t write that down that might not survive an audit. It’s just a good business practice to write who and what on the receipt every time.
Here’s a silly little tip that makes the IRS happy: when you’re paying for a business meal with your credit card, write the name and reason for the meeting on the slip that you sign and give to your waitress. That way, your “contemporaneous reporting requirement” is proved on your receipt carbon. Your waitress might think you’re a little weird but chances are she won’t even notice.
If you want more information about entertainment meal expenses, you can check out the IRS publication 463: http://www.irs.gov/pub/irs-pdf/p463.pdf
And now, I’m headed off to a non-deductible dinner with my husband!
Oh Dee,
You’re asking the million dollar question. All the accountants are arguing over this. And we’re waiting for guidance from the IRS. Here’s the deal – it used to be, that if you had lunch with a client – you could deduct 50% of the cost. And your particular question was addressed in the courts – so even though you only paid for your own meal, you could still deduct 50% of the meal. That was then.
Now it’s 2018 and there is “No Entertainment” deduction. Personally, I interpret that as – you can’t deduct taking your client to the Cardinals game – or the movies, or something like that. Many accountants are interpreting it as – no taking clients to meals.
So what’s the answer? We don’t know. Congress, or the IRS will need to let us know. In the mean time – I’m still keeping track of all of my business meals and I intend to deduct them unless I get guidance saying that I can’t. And until there is law – or another court case – stating that you can’t deduct your share of a business meal, I suggest that you keep track of your meals like that also.
Sorry for the lame answer. I’m blaming Congress for not spelling this one out properly.
Can you claim a business deduction for meals if you are self employed and meeting a prospective client. you do not pay for the clients meal , just your own.
Hi Collleen,
In Fitch v Commissioner the Tax Court held against them for all of their “business meals” together. The Tax Court did allow meals where they had clients or prospects with them, but any business meals of just the two of them were denied.
Now in fairness, the Fitches deducted hundreds of meals!
But if you and your husband dine together alone – technically the burden of proof is higher than for other meals. You’re going to want to document the amount of the expense of the meal, the time and the place, the business purpose and the names and business relationships of the persons at the meal. The cost, time and place should be automatic, it comes printed on the receipt. You’d just write the names, business relationship, and business purpose for a regular meal.
But since you’re dining with your husband – even though he works in the company, you’re going to want to meet a higher standard. Like write a memo about the meeting and how you’re going to follow up on it or something like that.
Now technically, I could do that if I met with my husband and followed through on his advice. But to be honest, he tells me to do stuff, I nod politely and ignore him. (I love him dearly, but I run my company by myself.) That said, if I actually listened to him and did as he told me, I could write off my meal with him if I followed through with some good documentation. But I’m lazy, and really, when I go out with him, I really do try to keep the business and personal separate. So I don’t.
Now, you and your husband own the business together, and quite frankly, you probably do have real business meetings together. When you do – document, document, document. Make sure that you can prove that you actually do go out for meals sometimes when it’s not business.
Wait — is the reason you (Jan) can’t deduct it because your hubby isn’t part of your business? I’m with Denise in the sense that my husband and I literally OWN the business together, and we literally talk business, strategize, etc during many of our meals. Please explain why that doesn’t count?
Hi Denice,
I’m sorry but you can’t. I know, that doesn’t seem fair, but lunch or dinner with your spouse doesn’t pass the IRS sniff test. I have the same problem, I can talk business with my husband all through the meal and still not be able to claim it.
My husband and I own a small business together. Every time we go to lunch, which is during our business hours, we truly talk business. Can we claim our cash lunches on our business taxes?