Business meals are a common expense, but what is tax deductible can be tricky to understand. Also, now for 2023 and forward, 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 and forward, 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 the current year:
| Type of Expense | Deduction |
|---|---|
| Business Meals with Clients | 50% |
| Meals with Employees and/or Contractors *employees other than yourself & if less than 50% of staff are present | 50% |
| Meals While Traveling for Business or Conferences | 50% |
| Office Snacks *Does not apply to S-corp owner if the only employee | 50% |
| Entertainment Related Meals *Must be charged separately from other entertainment costs | 50% |
| Meals with Employees and/or Contractors *employees other than yourself & if more than 50% of staff are present | 100% |
| Food for Company Holiday Parties | 100% |
| Food & Beverages Given Free to the Public | 100% |
| Entertainment Expenses (concerts, golfing, sporting events, etc.) | 0% |
| Meals, Groceries, & Snacks for Yourself or Family | 0% |
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
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!