Business meals are a common expense, but what is tax deductible can be tricky to understand. Also, now for 2023, there are some rule changes to know about. Let's dive in!
For 2021 and 2022, the Consolidated Appropriations Act of 2021 created a temporary tax incentive allowing a 100% tax deduction of business-related meals purchased at restaurants. This was an increase from the standard 50% tax deduction. As of January 1, 2023, that temporary incentive has expired, and the rules have gone back to a 50% deduction for most business meals.
Although the business meals rule has reverted back, entertainment is still not tax deductible. This permanent rule was created with the Tax Cuts & Jobs Act (TCJA) of 2017.
Here's a handy chart for 2023:
Type of Expense
Business Meals with Clients
Meals with Employees and/or Contractors *employees other than yourself & if less than 50% of staff are present
Meals While Traveling for Business or Conferences
Office Snacks *Does not apply to S-corp owner if the only employee
Entertainment Related Meals *Must be charged separately from other entertainment costs
Meals with Employees and/or Contractors *employees other than yourself & if more than 50% of staff are present
Food for Company Holiday Parties
Food & Beverages Given Free to the Public
Entertainment Expenses (concerts, golfing, sporting events, etc.)
Meals, Groceries, & Snacks for Yourself or Family
Rules for Business Meals
There are a few rules here, so bear with us:
The meal expense must be ordinary and necessary in carrying on your trade or business
You, as the business owner, or your employee must be present during the business meal with at least one other party present (ex. client or colleague). This rule would not apply to meals while you or your employees are traveling for business or conferences.
The meal expense cannot be lavish or extravagant under the circumstances
You must keep a proper record of the business meal:
The amount of expense (delivery fees, tips, and sales tax can be included)
The time and place of the expense,
The business purpose of the expense, and
The business relationship to the taxpayer of the individuals being entertained
I know it sounds like a lot of work, but it can be easily done. Writing the info on the receipt, taking a picture, and storing it in Google Drive is the easiest way to do this (or whatever storage system you use). Gone are the days of shoe boxes full of receipts 🙋♀️ unless that's your thing.
Always 0% Deductible
Meals, groceries, or snacks for your own consumption: As an S-corp owner, you are considered an employee of your company, BUT if you are the only employee, you cannot have a business meeting with yourself. Nice try, though...😉
If you are alone, then it isn't a business meal expense. Ordering UberEats for yourself while working through lunch at home/office, going to McDonald's to grab a quick bite, or ordering a latte at a coffee shop while working on your laptop doesn't count as a business meeting and is not a deductible meal expense. These meals are considered personal and should NOT be paid through your business accounts (debit card, credit card, etc.).
Meal expenses incurred for spouses, dependents, or other individuals accompanying the taxpayer: So if your wife tags along to a business dinner with a client, that’s cool, but her meal would not be a deductible expense. Best practice would be for you to pay for the business meals using a business account and your wife's from your personal account.
Entertainment: Renting a suite at the Blazers game to watch Damian Lillard break a scoring record, or seeing Taylor Swift in concert to woo a client are not deductible business expenses. Disappointing, we know... 😞. Meals related to entertainment, such as catering for the basketball suite, could count as a business meal but only if billed separately from the cost of the suite.
There are lots of rules, but hopefully, you feel more informed now. Let’s follow the rules and not get audited. Happy Mealing!
Meals on Your Profit & Loss Statement
If any meals are outside the normal 50% deductibility guidelines, like using your business card to purchase groceries for yourself (0% deductible), be sure to let your Accounting Advisor know. You can do this by responding to our monthly bookkeeping emails or emailing [email protected]. Our assumption is all meal transactions in business accounts are 50% tax deductible, so if something is either 100% or 0% deductible, we will need your help to identify those transactions.
We are always here to help answer any questions! Reach out to the Collective team at [email protected].
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.