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“Wining and dining” your current or potential customers, vendors, and employees is likely a common practice for your business. What you are allowed to deduct from these expenses has changed under the Tax Cuts and Jobs Act (TCJA), but some valuable write-offs are still available.
One of the largest changes under the TCJA is the removal of entertainment deductions. Most business-related entertainment deductions are no longer allowed. Among the disallowed deductions are sports events, theater productions, golf outings, and fishing trips.
Meal deductions still permitted
50% of the cost of food and beverages for meals conducted with business associates are still deductible. There are a few basic rules that must be followed to prove that the meals were business related:
- The expenses must be “ordinary and necessary” in carrying on your business. “Ordinary and necessary” means that costs must be customary and appropriate, not lavish or extravagant.
- The expenses must be directly related to or associated with your business. This means that there is an expectation of a concrete business benefit from the expenses. The principal purpose of the meal must be business.
- You must be able to substantiate the expenses. This means that you must have a record of the amount spent, the date and place where the meals took place, the business purpose, and the business relationship of those involved.
You should have detailed procedures for record keeping to track business meal costs so that you can prove them in case of an IRS audit.
Food and beverages bought at an entertainment event have been clarified by IRS Notice 2018-76. Taxpayers can deduct 50% of food and beverage expenses incurred at entertainment events if business was conducted during, or shortly before or after the event. To be deductible, the food-and-drink expenses should also be “stated separately from the cost of the entertainment on one or more bills, invoices or receipts.”
Meals bought for employees on business premises were previously 100% deductible by the employer. Under the TCJA employee meals provided on premises for the convenience of the employer are only 50% deductible. After 2025, these meals will no longer be deductible at all.
We can help
Deductions for meal and entertainment purposes have been complicated under the TCJA. We can help to look into issues affecting your business and best practices to the biggest savings possible for your business meal deductions. Contact us at 818-334-8623 or click here, and we will contact you.