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Meals and Entertainment Deductions | 50% vs 100%

By December 21, 2020January 19th, 2021News, Small Business

Knowing what meals and entertainment deductions you can take can be pretty confusingWhat is fully deductible, what is only 50% deductible, and what isn’t deductible at all? 

And once you know that, how do you tell the difference? 

It all comes down to what is the purpose of the meal/event and who is benefiting from it. 

In the past, it was commonplace to use wining, dining AND entertaining as a way to woo clients.  This was a great deal because you could write-off the box seats or the golf game, etc. 

But recently, the IRS clarified a few things on the Tax Cuts and Jobs Act (TCJA) regarding meals and entertainment deductions. One of the biggest changes is that deductions are no longer allowed for entertainment expenses, except for certain employee events. 

UPDATE: On December 21st, Congress passed the “Consolidated Appropriations Act” or CAA. As part of that, the 50% deduction for business meals has been increased to 100% through the end of 2022. 

What is Considered a Tax-Deductible Expense? 

There is still plenty of room for fun with deductions. You just have to be careful about what you’re doing so you can take them. 

Here are some examples of 100% deductible meals and entertainment expenses: 

  • The company holiday party or summer picnic (You can still have tax-deductible fun with your employees!) 
  • Business-promoting meals provided to the public, such as an open house. 
  • Meals provided as taxable compensation to employees (included on a W-2) 
  • Business meals (through the end of 2022)
  • Local travel for business purposes 
  • Out-of-town travel for business purposes 

Here are some examples of 50% deductible meals and entertainment expenses: 

  • Meals provided to an employee at work, such as if they’re working late 
  • Meals while traveling overnight on business 
  • Treating a few employees to a meal (Note – if it’s at least half of all employees, it’s 100% deductible!) 
  • Food for a board meeting 
  • Office snacks 

What Meals and Entertainment expenses are NOT Deductible? 

  • Entertaining a client or customer, whether or not business is discussed 
  • Tickets to sporting events, even if business is discussed 
  • Lavish or extravagant entertainment expenses 
  • Club fees or membership dues 
  • Entertainment facility leasing 

 This may change a few things about how you do business.  Instead of doing business in a box at an NBA game, you may be better off to wine and dine your clients and customers because it’ll be 50% deductible instead of 0% deductible. 

Make sure that you are reviewing meals and entertainment expenses to be sure you are properly applying the deductions.

If you’d like to review the law yourself, you can find it here. 

We don’t do tax preparation, but we can certainly help you get your financials in order so you’re ready to talk to your tax guy. Click here for our services page.