How to Tell if Your Business Meal is Deductible

By: |Published on: Dec 30, 2020|Categories: Accounting, Bookkeeping Services|

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The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) brought changes and simplified the process of filing tax returns for millions of Americans. Although most changes had a positive impact, there was a lot of confusion regarding business expenses.

 

Changes to Business Meal and Entertainment Deductions

 

In February 2020, the IRS finally gave us some insight into the changes to expensing business meals and entertainment. According to the 2017 Tax Act, business entertainment expenses are no longer considered 100% deductible. The good news is that Congress did not actually change much regarding deducting business meals. The key to understanding these tax changes is that if a meal is provided solely for entertainment, it is nondeductible.

 

Deductibility of Business Meals

 

There are minimum standards to determine that a business meal is a deductible tax expense. One key element is that the owner of the business must be present at the meal. The expense of a meal is deductible if trade or business is conducted during or in association with the meeting. It would be best if you documented what the purpose was of the meeting. Once you have determined that the meal is deductible, your expense can either be 50 percent or 100 percent deductible. Meals with employees or business partners only deductible if there is a direct or indirect business purpose. For example, daily lunches between colleagues are not deductible.

 

Categories of Meal Expenses

 

Here are some common scenarios to lessen your reportable taxable income with legal deductions:

 

100% Deductible Meal Expenses

 

  • The 100 percent deductible meal expenses are usually specific to public events, charity, or employee social events. The event must be beneficial to your employees, such as an employee recognition event or company party. Note that there is an exception for businesses that sell food—any meals given between, before, or after shifts being fully deductible. 

 

50% Deductible Meal Expenses

 

  • According to the IRS update, the 50 percent deductible meals include office snacks or meals provided on an employer’s premises for the employer’s convenience. Before the 2017 Tax Act, these meal expenses were 100% deductible. Included in this category are meal expenses such as coffee and water. Also included are full meals for on-site, evening, or weekend work. 

 

Nondeductible Meal Expenses

 

  • Other 50% deductible includes meals around client events. This rule did not change with The Tax Cuts and Jobs Act of 2017. To qualify, there must be a business function for the meal. This includes business meetings of directors of a business, travel meals related to business, conventions, seminars, or per diem reimbursements. 

 

Importance of Documentation

 

As you see, there are essentially three categories for meal expenses (nondeductible, 50% deductible, and 100% deductible). Your best bet is to keep track of every expense with the details of the meeting’s purpose and who attended the meeting, and what relationship he or she has to the business (vendor, client, etc.). 

 

How Estess CPAs Can Help

 

At Estess CPAs, we specialize in helping businesses save time and money. In addition to providing bookkeeping, payroll, and accounting services, we are here to advise you and help you succeed. Call us today and schedule an appointment at our Belle Chasse or Luling offices:

 

7822 Highway 23                    128 Lakewood Drive

Belle Chasse, LA 70037          Luling, LA 70070

(504) 433-5122                       (985) 785-1470