Deep Dive into Deductions for Business Meals and Entertainment by Steven Rubin, CPA
Posted on October 02, 2024
by
Steven Rubin
Operating a business can be expensive, and it can be challenging for businesses to know when they can write off certain expenses, especially with a frequently changing tax code. One particularly puzzling area of the law concerns the rules for deducting the costs of business-related meals and entertainment, which have evolved over the past few years.
In 2018, businesses lost the ability to deduct expenses for most entertainment, recreational and amusement activities with the enactment of the Tax Cuts and Jobs Act. The law also cut in half the deduction employers could take for business meal expenses, including food and beverage purchased separately from entertainment activities, provided they meet the following criteria:
- the expenses are neither lavish nor extravagant;
- the expenses are ordinary and necessary for the employer’s business, trade or profession;
- there is a clear and valid business purpose for the meal;
- the taxpayer (or an employee) is present at the meal; and
- the taxpayer can substantiate the food or beverage expenses with receipts demonstrating the business purpose of that meal and that those costs are separate from all other, nondeductible entertainment-related expenses.
The 50 percent business meal deduction through 2025 applies to a wide range of scenarios, including the meals employees enjoy while traveling for business purposes, the snacks employers keep in their offices and the meals they provide employees at conferences and in-office meetings. Taxes and tips are included in the amount that is subject to the 50 percent limit. Moreover, it is important to reiterate that food and beverage costs included in an entertainment activity, such as a suite at a concert or sporting event, are not deductible unless those expenses are separately invoiced from the entertainment costs.
In contrast, employers can write off 100 percent of the food, beverage and entertainment costs they incur when hosting a company-wide event for the benefit of their employees, such as a holiday party or picnic. This full deduction also applies to meals provided to employees at work or part of their taxable compensation and the food and beverages the company provides to the general public, such as snacks and coffee for customers.
Navigating the constantly evolving tax code can be challenging. It is important to work closely with your trusted advisors and CPAs to ensure you comply with the law and take advantage of every opportunity to help you minimize your tax burden and preserve wealth.
About the Author: Steven Rubin, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors and CPA, where he provides federal, state and local tax compliance and consulting services to corporations, closely held businesses and high-net-worth families. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbpcpa.com.
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