The cost of certain meals purchased on business trips can be deducted from your taxable income. In fact, this is one of the most common employee and small business expenses claimed each year. When deducting a meal expense, the IRS allows taxpayers to use two different methods: the standard meal allowance or the actual cost of the meal. Follow the tips below to use the standard meal allowance properly.
- Start by determining if your meals are deductible.
Not all meals consumed while you are traveling for business are deductible. In general, a meal is deductible if the meal is an essential part of business-related entertainment or if the meal is consumed while you are on a trip that requires you to stop for substantial rest time or sleep in order to perform your duties properly.
- Understand how the standard meal allowance works.
The standard meal allowance is a calculation method that allows you to deduct meals without keeping records of all of the actual costs you incur. With this method, you are able to use a pre-determined amount to calculate the cost of your daily meals and other incidental expenses while on your trip. This amount is established by the IRS. You can use the standard meal allowance whether you are self-employed or an employee.
- Use the right amount.
For 2015, the standard meal allowance was $46 per day for trips taken to most locations in the United States before October 1. For trips taken on or after October 1, the standard meal allowance for most locations in the United States was $51 per day. However, some locations qualify for higher meal allowances. To determine the amount of the standard meal allowance for a specific location, you can search by state or city on the United States General Services Administration's website.
- Apply the limit.
With both the standard meal allowance and the actual cost calculation methods, taxpayers are allowed to deduct only 50 percent of the cost of meals in most cases. For example, if your standard meal allowance is $51 for a given trip, you can typically deduct only $25.50 per day.
- Keep records anyway.
Keep in mind that even if you use the standard meal allowance, you will still be required to keep records to prove the time, location and purpose of your trip.
- Don't mix methods.
If you choose to use the standard meal allowance for any trip you take during the year, you must use it for all of the trips you take that year. You cannot use the actual cost of your meals to calculate any travel-related deductions.
- Compare calculations to get the highest deduction.
In some cases, the standard meal allowance is not the most beneficial calculation method. To determine which method is best for you, consider calculating your deduction both ways to see which is higher.
Calculating meal deductions can be complicated and time consuming. For assistance with travel expense deductions and other tax issues, contact Padgett Business Services.
Do you have the support you need to manage your small business cash flow and taxes? Schedule a 30-minute appointment to speak with your local small business advisor.