Not sure exactly how you should be filing taxes for business meals and entertainment? Here’s what you need to know about allowed deductibles and qualifications to ensure you’re getting the most out of your year-end taxes.
Meals
For related expenses incurred on January 1, 2023, and going forward, meals will be deductible for either 50% or 100% depending on the purpose of the meal and the meeting.
Examples of expenses that will be 50% deductible for tax purposes:
- Business meals with clients
- Meals while traveling for work
- Food items for the office, such as coffee and snacks for employees
- Meals at a conference
- Meals provided in the office for meetings of employees or owners
Please note that this is a change from your prior tax returns. As an incentive under the CARES Act, meals purchased at a restaurant during the 2021 and 2022 calendar years are 100% deductible. This rule no longer applies for purchases made on January 1, 2023, or for future years. This rule focuses on the date that the purchase was made regardless of the taxpayer’s year-end date.
Examples of expenses that will be 100% deductible for tax purposes:
- Meals provided to the employees for the convenience of the employer (e.g., dinner for employees who work late at the office)
- Food and beverage costs for company holiday parties, summer outings, or team-building events
- Food and beverages given to the public such as cookies in the reception area
Other Considerations for Meals
The guidelines above should offer some clarity regarding what counts as a deductible business meal. Additional items to consider for meals:
- All business meals need to have a documented business purpose. For example, an owner of a small business cannot deduct his or her meals if there is not a business reason for the meal.
- Transportation costs to and from the restaurant are NOT considered part of the cost of a business meal.
- Meal expenses incurred for spouses, dependents, or other individuals accompanying an employee on a work trip are NOT deductible for tax purposes.
Entertainment Deductions
Entertainment expenses are largely disallowed for tax deductions in 2023 and forward. Expenses for golf outings and tickets for sporting events and concerts cannot be deducted. There are a few exceptions that allow for entertainment-related deductions, including:
- Expenses for a company holiday party.
- Expenses for business meetings like conferences, travel for client meetings, etc.
Documentation Requirements
The IRS has provided guidance on the type of documentation and record keeping required to take the tax deduction related to meals that cost more than $75. Even though the IRS does not require receipts for meals totaling less than $75, you should keep some sort of record for all the company’s meal-related expenses to be safe.
Documentation should include:
- Total price of the meal after tip
- The date of the meal
- Who was in attendance
- Name of the restaurant
- How it related to your business and what matters were discussed
If you have any questions or concerns about filing your year-end taxes, please reach out to our Business Tax team today.
