When Can You Deduct Business Meals and Entertainment?

You’re not alone if you’re confused about the federal tax treatment of business meals and entertainment deductions. The rules have changed in recent years. Let’s take a look at what you can deduct in 2024.

Current Law:

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game. However, some business meals and entertainment deductions are still allowable under specific conditions.

Allowable Food and Beverage Costs:

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees, and tips. To qualify for business meals and entertainment deductions, food and beverages consumed in conjunction with an entertainment activity must:

1. Be purchased separately from the entertainment, or
2. Be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages.

You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other Rules:

Per IRS regulations, no 50% deduction for the cost of business meals and entertainment is allowed unless:

1. The meal isn’t lavish or extravagant under the circumstances.
2. You (as the taxpayer) or an employee is present at the meal.
3. The meal is provided to you or a business associate.

Who are business associates? They’re people with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees, or partners.

IRS regulations make it clear that business meals and entertainment deductions extend to 50% of the cost of a meal you consume while working late.

Traveling on Business:

When traveling for business, you can deduct 50% of the cost of meals. However, no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you unless the expenses meet the IRS criteria. These longstanding rules ensure clarity around business meals and entertainment deductions.

100% Deductions in Certain Situations:

Some favorable exceptions exist for business meals and entertainment deductions, allowing 100% deductibility in specific circumstances, such as:

• Recreational activities primarily for the benefit of all employees, such as a holiday party.
• Food and beverages available to the general public at promotional events.
• Meals and entertainment that are fully taxable as compensation or reported on a Form 1099.

Additionally, restaurants and catering businesses can deduct 100% of food and beverage costs directly related to serving their paying customers.

Bottom Line:

Understanding the rules for business meals and entertainment deductions can help maximize your allowable tax benefits. These deductions can be valuable, but the regulations are complex. Contact us for further guidance.