Taking a customer or business colleague to lunch or dinner before or after a business meeting is what the IRS calls an “associated-with” meal because the meal occurs before or after the business meeting. The IRS says the meal must have a “clear business purpose”. In addition, the primary purpose of the meeting is to conduct business and the business discussion is substantial in either importance or the amount of time spent talking about business. “Associated-with” meals and “directly related” meals are evaluated differently by the IRS which makes it easier to qualify goodwill meals as tax deductible expenses using the “associated-with” requirements. (See last week’s blog post for more information about “directly related” meals.)
The IRS looks at “associated-with” meals separate from the business meeting that occurred before or after the meal. The purpose of the meeting must be primarily for business and there must be an expectation of getting income or some specific business benefit. But the meal itself (before or after the meeting) must meet a lower standard of having a clear business purpose. Goodwill meals with clients meet the clear business purpose standard. Therefore, to increase your chances of getting your tax deductible meal approved by the IRS, you should have a business meeting before or after the meal.
Remember to keep your receipts, in addition to a record of business purpose, to prove to the IRS the meal expense is related to your business. No receipt and no record = no tax deduction.
Please contact David Paddock if you have any questions about this post or other audit-readiness matters.