The business meals tax deduction has been a subject of debate for decades. For some time, there was quite a bit of uncertainty surrounding the business meals deduction and the now obsolete business entertainment expense deduction. We have provided some updated guidance below.
Entertainment Deduction (Not deductible): Business entertainment expenses are no longer deductible after the Tax Cuts and Jobs Act of 2017 was passed. The recent IRS final regulations define entertainment as “any activity which is of a type generally considered to constitute entertainment, amusement, or recreation,” listing as examples “entertaining at bars, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips.”
Meals Deduction (50% deductible): Under the final regulations, a taxpayer may deduct 50% of an allowable business meal expense if:
- The expense is not lavish or extravagant under the circumstances.
- The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages; and
- The food and beverages are provided to a taxpayer or a business associate (e.g. customer, client, supplier, employee, partner, or professional adviser).
Travel meals are also 50% deductible. Travel meals are defined as an away from home meal with home being the taxpayer’s regular or principal place of business. This meal is only considered a travel meal if the taxpayer is travelling away from home long enough where they would be required to sleep or rest.
Meals Deduction (100% deductible): There are a couple circumstances when meals are 100% deductible. These include company-wide holiday parties and when food and drinks are provided to the public free of charge. Also, temporarily during 2021 and 2022, business meals and business travel meals provided by a restaurant (that are normally 50% deductible) are 100% deductible.
One final note is documentation is key! If you go out to a restaurant, take the time to write the names of the persons present at the meal and a summary of the business discussion on the back of the receipt. If the meal is travel-related and consumed only by the taxpayer, make a note of the business purpose of the travel. It is both important and necessary to keep permanent records showing the who, what, when, where, and why to be able to substantiate the deduction.