Business Meals and Entertainment Expenses
Business Meals and Entertainment Expenses

Business Meals and Entertainment Expenses: What’s deductible?

If you’ve been going to town (literally) on business meals and entertainment expenses for the last two years, you may need to start second-guessing some of those starters as deduction percentages have decreased to pre-COVID levels for 2023. 

The Consolidated Appropriations Act of 2021, signed by the President on December 27, 2020, made changes to deductions for business meals in tax years 2021 and 2022. Businesses were offered a 100% deduction in 2021 and 2022 for food and beverages provided by a restaurant. The objective of the temporary deduction was to stimulate the restaurant industry. In 2023, however, the deductions for business meals and entertainment have reverted to the values outlined in the 2017 Tax Cuts and Jobs Act (TCJA): most business meals are now 50% deductible instead of 100% deductible as they were in 2021 and 2022. Most entertainment expenses are not deductible. 

What you can claim in 2021 and 2022

The following expenses are not deductible:

  • Sporting event tickets
  • Transportation to/from a restaurant for client business meals
  • Club memberships and club-related expenses
  • Meals during entertainment that are not listed separately on the invoice

The following types of expenses are 50% deductible:

  • Water, coffee, and snacks at the office 

The following types of expenses are 100% deductible:

  • Meals included in charitable sports packages 
  • Meals provided for the convenience of the employer (such as meals for occasional employee overtime), if the meals are provided by a restaurant
  • Meals provided in the office during meetings of employees, stockholders, agents, or directors, if the meals are provided by a restaurant
  • Meals during business travel 
  • Meals at a seminar or conference 
  • Client business meals (provided the taxpayer is present and the meal is not lavish or extravagant) 
  • Meals included as taxable compensation to an employee or independent contractor 
  • Meals sold to a client or customer 
  • Food offered to the public for free
  • Office holiday party or picnic 
  • Team-building events

Here’s a summary of applicable deductions in 2023

Changes from 2021/22 are in red. 

The following expenses are not deductible:

  • Sporting event tickets
  • Transportation to/from a restaurant for client business meals
  • Club memberships and club-related expenses
  • Meals during entertainment that are not listed separately on the invoice

The following types of expenses are 50% deductible:

  • Meals provided for the convenience of the employer (such as meals for occasional employee overtime) 
  • Water, coffee, and snacks at the office 
  • Meals included in charitable sports packages
  • Meals in the office during meetings of employees, stockholders, agents, or directors 
  • Meals during business travel 
  • Meals at a seminar or conference
  • Client business meals (if the taxpayer is present and the meal is not lavish or extravagant)

The following types of expenses are 100% deductible:

  • Meals included as taxable compensation to an employee or independent contractor 
  • Meals sold to a client or customer 
  • Food offered to the public for free 
  • Office holiday party or picnic 
  • Team-building events 

What about entertainment costs?

Most entertainment expenses are no longer deductible, but there are some exceptions, including expenses for events like the company holiday party or rewards trip; or costs tied to business meetings (think chamber meetings, professional associations, or even a conference). If you sell entertainment to your customers, there are exceptions to the entertainment deductions. For example, if a bar owner pays a band to perform for customers, this would likely be a deductible business expense.

Here are four ways you can make the most of business meal deductions

If you had a lot of business meal and entertainment expenses in 2021 and 2022, you’ll want to look closely at the changes and see how you can improve your tax planning for 2023. 

#1 Bring in food for your employees

Expenses for food and beverages provided on the business premises primarily for the benefit of employees are 50% deductible as long as the meal comes from a restaurant. This rule applies to a wide range of employee activities, such as office parties, team building days, etc. If you choose to go offsite for these activities, the cost of the facility may be fully deductible too. 

#2 Build relationships over a good meal

If an employee takes a client or customer out for a meal at a restaurant, you’ll be able to deduct 50% of the cost as long as the meal isn’t overly lavish. The relationship could be with anyone the taxpayer or employee could reasonably interact with in the active conduct of business—including current or prospective customers, clients, suppliers, employees, agents, partners, and professional advisors. 

#3 Hit the road

Meals from restaurants during business travel are 50% deductible in 2023. Just remember that long-standing rules for substantiating meal expenses still apply. For example, deductions are not allowed for meal expenses incurred during business travel by those who aren’t business associates (such as spouses, dependents, or other individuals). 

#4 Offer snacks to your customers

Make your customers feel at home, create a positive association with your business, and take a tax deduction! Expenses for food and beverages that are made available to the general public (such as the customers who come to see you at your premises) are 50% deductible.

Bookkeeping tips for tracking business meal expenses

  • Create a new account for expenses that are strictly for business entertainment purposes and designate business meals
  • Keep travel expenses (including meals while traveling) completely separate from entertainment
  • Create a separate category for employee social meals, such as parties, picnics, team-building events, staff mentoring, etc. 

Not sure what business expenses are deductible?

Navigating these changes can be challenging, particularly if you’ve had lots of meal and entertainment expenses in the past. If your expenses are giving you headaches, you can rely on our team to offer an expense analysis that will leave you better prepared for tax time. Reach out to our team to schedule a consultation. 

We have also put together a comprehensive guide of the top small business tax deductions that will leave you feeling relieved this tax season. In this guide, you will find small business tax tips, detailed examples, and strategies for tracking expenses, giving you a better understanding of how to take advantage of these tax savings.
Download our comprehensive Guide to Small Business Tax Deductions.

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