Deducting Food and Beverage Expenses

When is a food and beverage expense nondeductible, 50% deductible, or 100% deductible?

The deductible amount permitted for a business’s food and beverage expenses can be confusing. In general, 50% of the expenses are deductible under §274(n)(1) unless an exception under §274(n)(2) applies that permits 100% of the expenses to be deductible. However, if the food and beverage expense is inextricably bundled with an entertainment expense, it may be nondeductible under §274(a)(1).

Below are typical business food and beverage expenses and the amount the business can deduct. The examples (and the result) come directly from Treasury Regulations.

Client Lunch

Aaron takes his client Bubba out to lunch and spends $60. How much of the $60 is deductible?

50% of the food and beverage expenses are deductible, totaling $30. See Treas. Reg. §1.274-12(a)(3)(i).

Employee Lunch

Carla takes her employee Derek out to lunch and spends $70. How much of the $70 is deductible?

50% of the food and beverage expenses are deductible, totaling $35. See Treas. Reg. §1.274-12(a)(3)(ii).

Hotel Business Meeting

Eric holds a business meeting at a hotel, during which food and beverages are provided to attendees. He spends $250 on facility charges and $600 on food and beverages. How much of the $850 is deductible?

The total deductible expenses are $250 for the facility charges and $300 for 50% of the food and beverage expenses, totaling $550. See Treas. Reg. §1.274-12(a)(3)(iii).

Basic Sporting Event

Adrienne invited Barbara, a major vendor of her business, to a baseball game to discuss a proposed business deal. Adrienne spent $100 on tickets and $50 on food and beverages during the game. How much of the $150 is deductible?

The ticket cost is a nondeductible entertainment expense, and 50% of the food and beverage expense is deductible, totaling $25. See Treas. Reg. §1.274-11(d)(1), (2).

Fancy Sporting Event

Carlita invited Daniel, a significant business customer, to a basketball game to discuss a new business line she is offering. She purchased suite tickets to the game, where they can access food and beverages. The cost of the suite tickets was $500, including the food and beverages, and the amount allocated to the food and beverages was not separately stated. How much of the $500 is deductible?

The entire ticket cost is a nondeductible entertainment expense because there is no separate statement of the food and beverage costs. See Treas. Reg. §1.274-11(d)(3).

Travel Meals

Frances, a sole proprietor, and her spouse, Susan, travel from New York to Boston to attend a series of business meetings related to her business. Susan is not an employee of the business and does not travel to Boston for business purposes.

While in Boston, Frances and Susan go out to dinner. They spend $200 on food and beverages, with the costs equally divided. How much of the $200 is deductible?

Susan’s meal expenses are nondeductible, while 50% of Frances’s meal expenses are deductible, totaling $50. See Treas. Reg. §1.274-12(a)(4)(iii)(D)(1).

Employee Cafeteria

Greenglass provides food and beverages to its employees without charge at a company cafeteria on its premises, and the food and beverages are not a de minimis fringe under §132(e). Greenglass treats the full fair market value of the food and beverage expenses as wage compensation to the employees as determined under Treas. Reg. §1.61-21(j). How much of the food and beverage expenses are deductible?

Greenglass can deduct 100% of the food and beverage expenses because their value was taxable compensation to the employees. See Treas. Reg. §1.274-12(c)(2)(i)(E)(1).

Different Employer Cafeteria

Hurrah provides meals to its employees without charge, and the meals are properly excluded from their income under §119 as meals provided for the employer's convenience. How much of the food and beverage expenses are deductible?

Hurrah can deduct 50% of the food and beverage expenses because no exceptions apply. See Treas. Reg. §1.274-12(c)(2)(i)(E)(3).

The Tax Cuts and Jobs Act added new §274(o), effective for expenses incurred after December 31, 2025, that would make these expenses nondeductible.

Accountable Plan Reimbursement

Violet reimburses her employee Doug $130 for food and beverage expenses while away from home on business travel. The reimbursement was made pursuant to an accountable plan under Treas. Reg. §1.62-2 and is excluded from Doug’s income. How much of the $130 is deductible?

50% of the food and beverage expenses are deductible, totaling $65. See Treas. Reg. §1.274-12(c)(2)(ii)(B).

Employee Holiday Party

Luis invites all his employees to a holiday party in a hotel ballroom. The party costs $2,500 and includes a buffet dinner and an open bar. How much of the $2,500 is deductible?

Since the holiday party is a recreational, social, or similar activity primarily for the benefit of non-highly compensated employees, both the facility costs and the food and beverage expenses are 100% deductible. See Treas. Reg. §1.274-12(c)(2)(iii)(B)(1).

Employee Break Room

Modern Furniture provides employees with free coffee, soda, bottled water, chips, donuts, and other snacks in a break room. It spends $2,200 per year on these snacks. How much of the $2,200 is deductible?

The break room is not a recreational, social, or similar activity primarily for the employees' benefit, so Modern Furniture may deduct only 50% of the expenses for food and beverages provided in the break room, or $1,100. See Treas. Reg. §1.274-12(c)(2)(iii)(B)(3).

Emergency Employee Meals

Northwinds has a written policy that employees in certain medical services-related positions must be available for emergency calls due to the nature of the position, which requires frequent emergency responses. Because these emergencies can and do occur during meal periods, Northwinds furnishes food and beverages to employees in this position without charge in a cafeteria on the business premises.

Northwinds excludes food and beverage expenses from their income, as meals provided for the employer’s convenience are excludable under §119. What percentage of these food and beverage expenses is deductible by Northwinds?

Because these food and beverages are furnished for the employer's convenience and are not primarily for the benefit of the employees (even if some socializing occurs), Northwinds may only deduct 50% of the food and beverage expenses. See Treas. Reg. §1.274-12(c)(2)(iii)(B)(4).

Waiting Area Snacks

Quest is an automobile service center that provides refreshments in its waiting area. Employees and customers consume the refreshments, and Quest reasonably estimates that customers consume more than 50% of them. Quest spends $2,800 per year on these refreshments. How much of the $2,800 is deductible?

Since customers primarily consume the food and beverages, Quest may deduct 100% of the food and beverage expenses, totaling $2,800. See Treas. Reg. §1.274-12(c)(2)(iv)(B)(2).

Food and Beverages for Sale

Triad is a restaurant that provides food and beverages to its food service employees before, during, and after their shifts for no consideration on the restaurant premises. What percentage of these food and beverage expenses is deductible by Triad? Do the employees recognize income from the receipt of the food and beverages?

The food and beverage expense is 100% deductible to Triad since the restaurant sells food and beverages to customers in a bona fide transaction for an adequate and full consideration in money or money's worth; this includes restaurant or catering business employees. See Treas. Reg. §1.274-12(c)(2)(v)(B).

The value of the food and beverages is also excluded from their income. A meal furnished to a restaurant employee or other food service employee for each meal period in which the employee works will be regarded as furnished for a substantial noncompensatory business reason of the employer, irrespective of whether the meal is furnished during, immediately before, or immediately after the working hours of the employee. See Treas. Reg. §1.119-1(a)(2)(ii)(d).

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