Our tool can help you use this deduction properly
Updated March 2023
As part of the Consolidated Appropriations Act (2021), the deductibility of business meals has changed. Food and beverages were 100% deductible if purchased from a restaurant in 2021 and 2022. This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.
However, for purchases made in 2023 onward, the rules revert back to how they were defined in the Tax Cuts and Jobs Act. This means purchases for business related meals are back to only 50% deductible.
Entertainment expenses, like a sporting event or tickets to a show, are still non-deductible. However, team-building activities for employees are deductible.
Know what you can and cannot get a deduction on
Most of the rules are pretty cut and dry (see examples below). However, there are a few common scenarios that Senior Tax Research Manager Yunnice Chang receives questions about.
“Purchasing tickets to take a business client to a sporting event or other entertainment type events are not deductible. Also gone are charitable deductions for contributions to the right to purchase tickets to a college’s athletic events,” reminds Yunnice. “But you can deduct the meals consumed at these events, if you separate the receipts.”
However, team-building outings, including the purchase of tickets for your staff is allowed and 100% deductible. The tax code states that “expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees” qualify for the 100 percent deduction.
Dinner provided for employees working late is 50% deductible. De minimis fringe benefits like in-office coffee and snacks do not fall into the category of meals, however, they are also 50% deductible.
Cruise ship conferences that offer continued education have their own set of rules. Read more about those on our blog.
Check the table below for what you can do in 2023 as the law stands today:
Keep all itemized receipts for any business meals
Although your tax preparer may not need a copy of your dinner receipt, the IRS states that you must keep record of your receipts and document attendee’s names, restaurant’s name, business purposes, and dates in case of an audit.
If you have expenses abnormally higher than last year, this could be an area that is at risk for exposure for the IRS. Keeping documentation will help support an audit, should it happen. If you cannot substantiate your expenses, you will be required to pay back the tax, penalties and interest.
Reducing your tax burden is essential to reaching long-term financial goals. Working alongside the financial planning team, our in-house tax professionals play an integral role in helping our clients ensure we’ve exhausted all measures in reducing any tax liabilities.
Schedule a complimentary consultation to learn more about how our planning and tax teams can help your practice.
