In 2017, a piece of legislation making major changes to the tax code went through. Many things were affected, including the kind of tax deductions you’re allowed to take on business-related meals and entertainment expenses. And then the pandemic hit, and all the rules changed again. And then again this year. And they’ll change again at the end of 2025.
If you’re having trouble keeping up, don’t worry. Here’s how meals and entertainment deductions work right now, and what changes you can expect to come in the near future.
Contents |
What is a meals and entertainment deduction? |
Past changes |
How it works right now |
Future changes |
Come with receipts |
A tax deduction, colloquially known as a write off, is an expense or other sum that you’re allowed to subtract from your taxable income, thus reducing the amount you owe in taxes.
From lunch with a client to a holiday party for your employees, meals and entertainment are a classic cost of doing business. Luckily, those expenses often count as a write off. If, in the course of doing business, you or an employee pays for food or drink, that’s a meals and entertainment expense.
According to the IRS, meals and entertainment expenses are deductible as long as they are:
But the rules around meals and entertainment expenses have changed quite a few times over the past few years, and it’s worth taking a look at recent updates.
Two major legislative acts in the past decade have made sweeping changes to the rules around meals and entertainment expenses: the Tax Cuts and Jobs Act of 2017 (the TCJA) and the Taxpayer Certainty and Disaster Relief Act of 2020.
As mentioned above, business meals were 100% deductible through 2021 and 2022 in an attempt to help restaurants make it through the COVID-19 pandemic. This is no longer the case.
As of 2023, business meals are now 50% deductible, including meals for employees that are traveling or working late. And client entertainment expenses – golf games, concert tickets, that kind of thing – are no longer deductible at all.
One major exception: company parties. So don’t worry, you can still write off this year’s wild Tax Day party (you all celebrate Tax Day too, right?).
👩🏫 Note: If it’s a consistent thing, like a daily lunch for employees, that’s a fringe benefit, and it should be reported on employee W-2s as compensation. It’s still a deductible expense for the business owner, however. |
It’s impossible to say what Congress might do with meals and entertainment expenses in years to come, but there is one change coming that we already know about.
Meals provided to employees in a cafeteria will no longer be deductible – at all! – after the end of 2025.
If you want to take full advantage of your meals and entertainment deductions, you’ll need to provide proper documentation to the IRS.
Retain receipts (or bank or credit card statements) for any expenses claimed in case of an audit. A calendar event or something similar demonstrating it was a business-related meal wouldn’t hurt, either.
Meals and entertainment are a time-honored part of business and that means they show up on your tax returns. The rules aren’t complicated, but they change frequently, so stay tuned if you want to keep up. And make sure you keep proper documentation! You want to be able to prove the big expenses are business-related if the IRS comes knocking.
Too busy to keep track of every little change Congress or the IRS makes to the tax code? You’ve got someone for that – us! Schedule a call with DiMercurio Advisors and find out how much easier we can make your tax preparation.