Confused about the federal tax treatment of business-related meal and entertainment expenses? You’re not alone, especially since the rules have changed over the last few years. Let’s break down what you can deduct now.
Current law
The Tax Cuts and Jobs Act put an end to deductions for most business-related entertainment expenses. That means you can no longer write off things like client outings to a football game or golf course. However, you can still deduct 50% of food and beverage expenses as long as they’re business-related or consumed during business-related activities.
Allowable food and beverage costs
The IRS considers all food and beverage costs—whether meals, snacks, or drinks—deductible. This includes the sales tax, delivery fees, and tips associated with them.
In order to qualify for the 50% deduction, food and beverages must either be purchased separately from the entertainment or be clearly listed on a bill, invoice, or receipt that specifies the usual selling price. If they aren’t itemized or separately purchased, you can still deduct 50% of the reasonable value of the food and beverages.
Other rules
To qualify for a 50% deduction on business meals, IRS regulations require the following:
1. The meal must be reasonable, not lavish or excessive under the circumstances.
2. Either you, as the taxpayer, or an employee must be present at the meal.
3. The meal must be provided to you or a business associate.
Business associates include individuals with whom you expect to do business, such as current or potential clients, suppliers, customers, employees, and partners.
IRS guidelines also allow you to deduct 50% of the cost of a business-related meal for yourself if, for instance, you are working late or away from home.
Business travel
According to IRS regulations, you can typically deduct 50% of meal expenses incurred while traveling for business. The longstanding rules for substantiating meal costs still apply, so make sure to keep those receipts.
Additionally, the IRS confirms that meal expenses for spouses, dependents, or others traveling with you are not deductible. This extends to spouses and dependents traveling with an officer or employee on a business trip.
However, there is an exception. If your spouse's meal expenses are directly tied to a legitimate business purpose (e.g., your spouse works for your company and attends business meetings), then they may be deductible.
100% deductions in certain situations
There are specific situations where meal and entertainment expenses can be fully deducted, according to longstanding IRS regulations. These include:
- Costs for food, beverages, and entertainment at events that benefit all employees, like a company holiday party
- Food, beverages, and entertainment provided to the general public, such as free refreshments at a promotional event
- Meals and entertainment sold to customers at full price
- Costs that are reported as taxable compensation for employees
- Meals and entertainment are reported as taxable income to non-employees (for example, a prize such as a dinner cruise awarded to a customer at a sales event).
In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.
The bottom line is that business-related meal deductions can offer significant tax benefits, but sticking to the rules can be tricky. Reach out to your Smolin advisor if you need clarification on these deductions.