Consultant’s Corner: Deducting Meal Expenses
Q: I’m a sole proprietor, going out of town on a training trip. For the purposes of deducting my meal expenses, do I have to save all my meal receipts for the whole week, or can I pay myself a per diem?
With your business structured as a sole proprietorship, you can deduct your travel related business meal expenses using the IRS standard meal allowance, which varies by geographic location. You can use the standard meal allowance to figure your travel related business meal expenses whether or not your business reimburses you for the cost of the meals. Reimbursing yourself based on the standard meal allowance for the geographic location where the training was held will not make your deductible business meal expenses larger.
Also, keep in mind that business meal expenses are only 50% deductible whether figured using the standard meal allowance or actual meal expenses. In addition, while using the standard meal allowance is adequate substantiation of your meal costs, you still need to keep records to prove the time, place, and business purpose for your travel which often requires that you retain your actual meal receipts. You can review the IRS rules on travel related business meal expenses in Publication 463, which explains…
You can deduct the cost of meals in either of the following situations.
- It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business.
- The meal is business-related entertainment.
Business-related entertainment is discussed chapter 2. The following discussion deals only with meals that are not business-related entertainment.
Lavish or extravagant. You cannot deduct expenses for meals that are lavish or extravagant. An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.
50% limit on meals. You can figure your meals expense using either of the following methods.
- Actual cost.
- The standard meal allowance.
Both of these methods are explained below. But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals…
You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep records of your actual cost.
Standard Meal Allowance
Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. The set amount varies depending on where and when you travel. In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance. If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. See the recordkeeping rules for travel in chapter 5…
There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost.
Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses.
Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2015, the rate for most small localities in the United States is $46 a day for the period January 1 through September 30, 2015, and $51 a day for the period October 1 through December 31, 2015 (also $51 a day for the period January 1, 2016 through September 30, 2016).
Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances.
You can find this information (organized by state) at www.gsa.gov/perdiem. Enter a zip code or select a city and state for the per diem rates for the current fiscal year. Per diem rates for prior fiscal years are available by using the drop down menu.
If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest…
Travel for days you depart and return. For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). You can do so by one of two methods.
Method 1: You can claim 3/4 of the standard meal allowance.
Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice.
Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. Jen’s employer gave her a flat amount to cover her expenses and included it with her wages.
Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.
Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days.”
The standard meal allowance for specific geographical locations within the continental U.S. can be found at the GSA website below: