Updates on Deductions for Business Meals and Entertainment by Claribel Velazquez, CPA
Running a business can be expensive, and it can be confusing to know when companies can write off certain expenses, especially with a frequently changing tax code. One particularly puzzling area of the law concerns the rules for deducting the costs of business-related meals and entertainment, which have evolved over the past few years.
In 2018, businesses lost the ability to deduct expenses for most entertainment, recreational and amusement activities with the enactment of the Tax Cuts and Jobs Act. However, the law retained a 50 percent deduction for business meal expenses, including food and beverages purchased separately from entertainment activities, when they meet the following criteria:
- the expenses are neither lavish nor extravagant;
- the expenses are ordinary and necessary for the employer’s business, trade or profession;
- there is a clear and valid business purpose for the meal;
- the taxpayer (or an employee) is present at the meal; and
- the taxpayer can substantiate the food or beverage expenses with receipts demonstrating the business purpose of that meal and that those costs are separate from all other, nondeductible entertainment-related expenses.
While the deduction for business meals was temporarily expanded to 100 percent for tax years 2021 and 2022, it returned to 50 percent for tax years beginning in 2023 and applies to a wide range of scenarios, including meals while traveling for business purposes, stocking your office with snacks and feeding employees at conferences and in-office meetings.
It is also important for employers to recognize that they may continue to write off 100 percent of the food, beverage and entertainment costs they incur to host a company-wide event for the benefit of their employees, such as a holiday party or picnic. A full deduction also applies to meals provided to employees at work and as part of an employee’s taxable compensation as well as food and beverages provided to the general public, such as snacks and coffee for customers.
Navigating the constantly evolving tax code can be challenging. It is important to work closely with your trusted advisors and CPAs to ensure you comply with the law and take advantage of every opportunity to help you minimize your tax burden and preserve wealth.
About the Author: Claribel Velazquez, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she provides tax compliance and consulting services to high-net-worth individuals, closely owned businesses and commercial real estate and development businesses. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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