The meals and entertainment deduction has gone through several revisions in recent years. Before 2018, meals and entertainment were eligible for a 50% tax deduction.  Beginning with the 2018 tax year, the Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses altogether, while most meals remained 50% deductible. In 2021 and 2022, the Consolidated Appropriations Act temporarily gave taxpayers a 100% deduction for certain meals in an effort to support restaurants impacted by COVID.  In 2023 and 2024, the rules reverted back to the Tax Cuts and Jobs Act, with business-related meals generally limited to a 50% deduction.

Here are a few examples of the tax deduction allowed for common types of business meals and entertainment expenses:

No Deduction – Entertainment

• Taking a client or prospect to a football game or to play golf
• Dinner and a concert with a client and spouse
• Meals that the IRS would consider “Lavish” or “Extravagant”

50% Deduction – Business meals

• Restaurant meal with a client, prospect, or a few employees
• Meal with prospect purchased separately after a round of golf (golf not deductible)
• Meals at a conference or while traveling for work
• Snack items and meals provided for employees in the office kitchen

100% Deduction – Meals (and entertainment) available to all employees

• Team building social, recreational, or entertainment outings available to all company employees – for example, a company-wide golf outing, including meals
• Company-wide holiday party or summer picnic

Confusing? Yes, but those responsible for recording expenses need to have controls and accounts set up to accurately capture the expenses that can be fully deductible, partially deductible and nondeductible.   If your chart of accounts still combines meals and entertainment into a single account, you should consider using separate accounts going forward.

Documentation

While there are no specific IRS requirements to document meals under $75, the best practice is to keep documentation for meals that are fully or partially deductible. That includes:

• Copy of the receipt which substantiates the date, name of restaurant and cost
• Account of who attended
• Business reason

If you have any questions, please get in touch with your Dent Moses advisor.