Tax Deductions: Food, Home Office Expenses

Whether you can deduct taxes on food and your home office depends on your employment status and the nature of the expenses. If you're a wage employee who works from home, you generally can't claim deductions on food or your home office. However, if you're self-employed or a small business owner, you may be able to deduct certain expenses. For food, 50% of the cost of meals with clients or business colleagues can be deducted if the meal has a clear business purpose. This doesn't include solo lunches or stocking your home office with groceries. For home office deductions, you can deduct a portion of home-related expenses, such as rent, mortgage interest, utilities, and repairs, if you use your home office exclusively and regularly for business.

Meals with clients are deductible

Meals with clients are indeed deductible, but there are some important conditions to be aware of. Firstly, the meal must be directly related to or associated with your business. This means that work must be discussed during the meal. It is not necessary to pay for the client's meal, and you can still deduct the cost of your own meal.

Secondly, the meal must not be "lavish or extravagant" relative to the business context. The cost of transportation to and from the meal is not included in the deduction. Additionally, the meal must be provided by a restaurant or caterer; food purchased from a grocery or convenience store does not qualify.

Thirdly, you must keep a record of all business meals, regardless of cost. This record should include the date of the meal, the purpose of the meal as it relates to business, the names, titles, and affiliations of those who attended, and the total amount of the bill, including tax and tip. If the meal costs over $75, you should keep the receipt.

Finally, the deduction is usually limited to 50% of the cost of the meal. However, for 2021 and 2022, businesses could deduct the full cost of business-related food and beverages purchased from a restaurant.

Business lunches are deductible

The IRS defines "ordinary" as something that is common and accepted in your industry, while "necessary" means helpful and appropriate for your business. So, if you invite a colleague or client to lunch or dinner, you can deduct 50% of the expense if your employer doesn't reimburse you. This also applies if you're self-employed and expect to gain some benefit from the meal, even if you don't directly discuss business.

Additionally, the IRS requires that the meal is not "lavish or extravagant" under the circumstances. You can deduct the cost of food and beverages, including delivery fees, tips, and sales tax. It's important to keep records of your expenses, including the date, amount, place, and business relationship for each meal.

During business trips, you can deduct all your meals if you spend the night away from home. The overnight stay must be far enough that you couldn't reasonably return home for meals. You can also deduct meals during the trip if you're travelling during mealtime, even if you don't spend the night away.

It's worth noting that the rules for deducting business meals have evolved over time. For 2021 and 2022, the Consolidated Appropriations Act allowed a 100% deduction for food and beverages provided by restaurants. However, starting in 2023, the rules reverted to the pre-pandemic state, with a 50% deduction for business lunches.

Home office expenses are deductible

If you're self-employed and work from home, you may be able to deduct home office expenses from your tax bill. This includes people who work from home full time, those who have freelance side gigs (even if they also work for an employer), and those who were self-employed for just a few months.

The home office deduction is a tax break for self-employed people who use part of their home for business activities. To qualify, you must use your home office "regularly and exclusively" for work. It must be your principal place of business, meaning you use the space exclusively and regularly for administrative or management activities, such as billing customers, setting up appointments, and keeping books and records.

There are two ways to calculate your home office deduction: the simplified method and the regular method. With the simplified method, you receive a deduction of $5 per square foot for up to 300 square feet of space, with a maximum deduction of $1,500. With the regular method, you calculate your deduction based on the percentage of your home used for business, including actual expenses such as mortgage interest, insurance, utilities, repairs, and depreciation.

The simplified method is generally easier but may result in a smaller deduction. The regular method requires more complicated calculations and record-keeping but could give you a larger deduction. You can use IRS Form 8829 to help you figure out your expenses and which method to choose.

If you're self-employed, you may also be able to deduct other expenses for setting up your home office, such as furniture, equipment, internet modems, and video call accessories. These expenses are deductible as business expenses on Schedule C.

Employees can't claim home office deductions

Since the 2018 tax reform, at-home expense deductions for employees have been reduced but remain for self-employed workers. Employees who work from home can no longer claim tax deductions for their unreimbursed employee expenses or home office costs on their federal tax return.

Convenience of the Employer Test

Employees may only take the home office deduction if they maintain the home office for the convenience of their employer. An employee's home office is deemed to be for an employer's convenience only if it is:

• A condition of employment
• Necessary for the employer's business to function properly
• Needed to allow the employee to perform their duties properly

Basic Home Office Requirements

For any home office to be deductible, employees must:

• Use a part of their home regularly and exclusively for work
• Have a home office that is their principal workplace or regularly perform administrative or management tasks there

Additional Requirements

Using a home office exclusively and regularly for business is not enough to qualify for the home office deduction. Employees must also satisfy at least one of the following additional tests:

Home as Principal Place of Business

The most common way to satisfy the additional home office deduction requirement is to show that the home is the principal place of business. This depends on where the majority of work is done and what type of work is done at home. If all or almost all of the work is done in the home office, it will qualify for the home office deduction.

You Do Administrative Work at Home

Employees can also qualify for the home office deduction if they:

• Use the office to conduct administrative or management activities for their employer
• There is no other fixed location where they conduct substantial administrative or management activities

Using a Separate Structure

Employees can deduct expenses for a separate freestanding structure, such as a studio, garage, or barn, if they use it exclusively and regularly for their employee work. The structure does not have to be the principal place of business or a place to meet patients, clients, or customers.

Business travel meals are deductible

The IRS defines a business meal as "ordinary and necessary". This means that the meal must make sense given your industry and be taken for the purpose of carrying out business activities. Meals are 50% deductible, and this includes food, drinks, taxes, and tips. However, during 2021 and 2022, meals were 100% deductible to help restaurants recover from the COVID-19 pandemic.

There are some cases where the 50% rule does not apply. For example, if you are travelling for business and are away from home overnight or for long enough that you need to stop for sleep or rest, you can deduct 50% of the standard meal allowance instead of 50% of the actual cost of your meals. This is because the standard meal allowance already takes into account that you will be eating more expensively when you are away from home.

If you are travelling abroad for business, you must spend at least 25% of your time conducting business to qualify for a business trip and claim travel expense deductions. If you conduct business for less than 25% of the time while on a trip, you can still deduct travel costs in proportion to the amount of time spent on business.

Frequently asked questions