Intuit Income Tax 2 Practice Exam

The ability to deduct the cost of meals with clients for business purposes is based on the principle that expenses must be ordinary and necessary for the operation of a business. Meals with clients can facilitate business discussions and are directly related to generating income. The IRS allows businesses to deduct a portion of the cost of meals and entertainment expenses that are directly associated with the active conduct of a trade or business.

Typically, it is important to maintain documentation, such as receipts and notes on the purpose of the meal and the participants involved, to substantiate these deductions. The deduction, while still a business expense, also has specific regulations, such as the limitations on the percentage deductible.

In contrast, personal travel expenses, gifts to family members, and personal clothing expenses do not meet the criteria for business deductions. These expenses are generally classified as personal in nature and are not directly related to generating business income or conducting business operations, which is why they cannot be deducted as business expenses.