Can I Deduct 100% of My Business Meal Expenses?
Yes, you can.
Hot Off The Press. New guidance was released by the IRS on a temporary exception that allows businesses to deduct 100% of their food and beverage expenses!
So long as they are not "lavish or extravagant" (of course, the IRS ruins the party), from January 1, 2021 through December 31, 2022, the normal 50% limit will be increased to 100% for all business food or beverage expenses purchased at restaurants.
This does not include beer, liquor, wine, or grocery stores. Pre-packaged goods not for immediate consumption is also not allowed.
The intent of this provision is to help restaurants that had been impacted by the pandemic.
So, go out. Take your team (or yourself) and you might find that next lunch a bit more enjoyable next time :)
When can I deduct business meal and entertainment expenses under current tax laws?
Just two years ago, under the Tax Cuts and Jobs Act, business-related entertainment expenses were eliminated.
Before that, you could deduct 50% of the cost of taking clients to play golf, to a ballgame, or even to a concert. One of my first blog articles was on this topic of eliminating entertainment expenses. Check it out!
Business meal expense laws, however, have not changed over the years.
Business meals may still be deducted if:
they are not "lavish or extravagant"
the meal has an "ordinary and necessary" purpose
the owner or an employee is present and a legitimate business discussion is held amongst themselves or with a business associate (client, vendor, consultant)
Entertainment expenses are not completely eliminated, though. Entertainment expenses are allowed if the expense was directly related to conducting business.
With so many industries, and unique ways people are making money these days, my rule of thumb is; if you can confidently explain the business use of your entertainment (and meal expenses for that matter) to an IRS agent, write it off.
KEEP ALL RECEIPTS. Not just receipts. Itemized receipts. I know it's a pain to keep all of those paper receipts, especially when you have to request it most times these days, but the law has always been that you need to have detailed records to support these types of expenses.
Good news is, you can still deduct 100% of meal and entertainment expenses that are either:
incurred primarily for the benefit of employees (think Christmas parties or company BBQ)
made available to the general public (think free snacks and drinks at a sponsored event)
sold to customers at full value
or, when those expenses are reported as taxable income to your employees
What about tickets to a ball game?
Another question I get a lot is whether or not tickets to a ball game are tax deductible. They are, only if they are season tickets.
The law explicitly states that the entertainment activity cannot have substantial distractions because you need to be able to "conduct a business discussion." So, tickets to a sporting event or concert would not be considered a business expense.
There are also special rules for the costs of facilities used to entertain the customer such as a country club membership or club, which are non-deductible.
Season tickets do not apply.
As long as you allocate the cost of the season tickets to each separate game that you entertained a customer or business associate, you can deduct the cost of the tickets. By itself, a game is a "distracting" activity, but if you conduct a substantial business discussion before or after the game, that game would qualify as part of the cost you can allocate as tax-deductible.
The new regulations also hammer away at the fact that you cannot deduct meals for spouses or dependents, unless they work for your business.
Takeaway for all business owners
The hard and fast rule with all business expenses is that the expenses must be ordinary and necessary for carrying on the business. If you can confidently explain the business purpose behind an expense, write it off.
Keep that in mind, and go crush it this year!