You’re rocking your creative business, meeting with leads, traveling to events and pumping out amazing things for your clients. Somewhere along the way, even a Creative Entrepreneur needs a meal or two.
Did you know some of those meals may be tax deductible?
I’m going to give you all the details on when and how to deduct meals as a creative entrepreneur.
Let’s start from the beginning…
Before 2018, There was a tax deduction called “Meals & Entertainment” Unfortunately the new 2018 tax laws removed the “Entertainment” part of the deduction altogether. You can read more about that in my post “Bye Bye Entertainment Deduction“
The Good News
You can still deduct the “Meals” portion of the old “Meals & Entertainment” deduction. But let me break it down so you understand what you can deduct and when.
The 50% Rule
First things first, you can only deduct 50% of allowable business meal expenses on your tax return. However, for bookkeeping purposes, you can totally include 100% of the meals on your books. You should pay for all allowable business meals expenses with your business account so that you are sure to capture all business expenses. The 50% will be calculated when your taxes are prepared.
The IRS defines Meals as food, beverages, taxes, and related tips.
What’s an allowable business meal expense?
The IRS says, If a meal meets the following criteria it is an allowable business meal expense.
- Ordinary and necessary to your business, paid or incurred during the taxable year.
- NOT lavish or extravagant.
(Unfortunately like many things this is a gray area the IRS doesn’t actually have a definition for lavish or extravagant. So, make sure the meal you are deducting meets all other criteria in this list and is reasonable)
- You or an employee of yours must be present at the meal.
(I can hear you now “but, what if it’s one of my contractors?” this is common in the Creative Entrepreneur space, so I’ve
added more guidance on this below)
- The meal is with a business contact (For example a contractor, employee, client, etc…)
- If the meal is part of an entertainment event and the cost of the meal is listed separately, and the meal meets all other criteria you can deduct it.
(for example, you take a client, contractor or employee to a baseball game. If the ticket is purchased separately from the food and you discuss business at some point during the event YOU CAN deduct the meals purchased ONLY if they are listed separately)
All of the above allowable business meal expenses should be tracked in your bookkeeping.
Meals & Contractors
This is a common scenario for Creative Entrepreneurs. So let’s look at a few situations so that you can see when and how to deduct meals:
If you’re WITH the contractor at the meal
You can pay for the meal with business funds and deduct it as long as it meets the 5 criteria of an allowable business meal expense listed above.
If you’re NOT WITH contractor at the meal
Technically your contractor is self-employed, so in this scenario, if you’re not there, they should incur this fee as a meal deduction for their own business. They will pay for it and keep track of it for their taxes (as long as it meets the 5 criteria of an allowable business meal expense listed above)
(For example, your contractor is meeting with a client yours for a coffee to discuss the project – your contractor will pay for the meal and write it off on their own taxes)
What about meals by myself?
Many Creatives will pop over to a coffee shop to work remotely – While this may be hugely inspiring or a nice change of scenery, unfortunately, anything you consume while working alone at the coffee shop is not a deduction and should be paid for with personal funds.
This situation does not meet 2 of the 5 criteria for an allowable business meal expense:
(remember an expense must meet ALL 5 to be allowable)
It doesn’t meet criteria #1: Working alone from a coffee shop might be necessary for you’re creative juices but unfortunately, the IRS doesn’t consider it necessary for your business.
It doesn’t meet criteria #4: You may be working on your business, but you’re not in the company of any business contacts.
Meals alone will most likely never meet all 5 criteria unless you are traveling.
So, how about meals when you travel?
Travel is the only time you can deduct an allowable business meal when you’re alone.
The IRS says if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties you can deduct any meals you consume (even if you are alone)
Now that you know when and how to deduct meals as a Creative Entrepreneur remember you can only deduct what you track. Be sure to keep receipts and details for all meals and include notes of who it was with or what the meeting was for. (This will be helpful if ever audited)
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Expenses for Business Meals Under § 274 of the Internal Revenue Code
Publication 334 – Tax Guide for Small Business