We all have to eat—so why are lunch expenses sometimes counted as business expenses? We reached out to CPA, church finance specialist, and Church Law & Tax Editorial Advisor Vonna Laue for her insights on this topic and how churches can implement best practices regarding lunch expenses.
What is required for a lunch to be considered a business expense?
For lunches to qualify as a business expense, they need to have a legitimate business purpose, and that purpose has to be documented. Similar to needing receipts whenever there’s a meal involved, you also need to document who participated and the ministry purpose for the lunch. You have to be honest and legitimate about your claim, and if it were ever challenged, the standard would be: “What would a reasonable person say?” If a youth pastor is claiming they’ve got a business lunch every day, a reasonable person may look at that and say, “That’s abusive.” A youth pastor may have a number of meetings outside of the church with students who are near the church: at a high school, a college campus, or somewhere similar. But would a reasonable person look at it and say, “That seems prudent to me”?
There isn’t a hard and fast rule or a checklist you can complete. But you need to make sure you can legitimately document a lunch’s purpose and that if other people look at it, they’d determine the expense was reasonable.
What about offsite meals with internal staff only—do churches need to exercise more caution then?
They need to be careful—again, they must make sure meals are not on a consistent basis and there are reasons for them. For instance, why did a lunch have to take place outside of the church? Was it a meeting that could have taken place inside? It may be that it’s simply a periodic benefit to the employee: e.g., a performance evaluation was done outside the church as a matter of employee morale. But if that is being done on a consistent basis, then you go back to that “reasonable person” standard to see if it’s inappropriate.
How should church staff document these expenses?
Staff should create an expense report that is part of an accountable reimbursement plan the board has approved: one that lays out the criteria for expense reports. The report needs to be completed and submitted in a timely fashion, with receipts attached. If the lunch expense is on a corporate credit card, you still need to turn the receipts in and have the documentation. The documentation should include who participated, the business purpose of the meeting, and usually the receipt will have the “when” and “how much” and “where." If there is an individual expense reimbursement for it, it should be submitted and reimbursed within 60 days as a general guideline.