Preface: “Entertainment is in the eye of the beholder.” – Anonymous
Meals and Entertainment Deductions for Businesses in Tax Year 2023
Credit: Benjamin Gelbart
For the most part, tax year 2023 sees a continuation of the types of meals and entertainment deductions allowed under the Tax Cuts and Jobs Act of 2017. This means:
I) No deductions are allowed for entertainment expenses.
II) In general, meal expense deductions are limited to 50% of their cost.
The 100% deductions that had been allowed in 2021-2022 for meals purchased in restaurants have now been discontinued. This increased percentage had been introduced as part of the Consolidated Appropriations Act of 2021 to help support the restaurant business during COVID by encouraging businesses to spend more of their meal budgets in restaurants.
The increased percentage still applies to meals that were purchased in restaurants during 2021-2022, but the 50% limit is back in effect for meals purchased in 2023 and going forward.
The only meals that remain 100% deductible for 2023 are:
a) Office holiday parties and picnics.
b) Food offered to the public for free.
c) Meals that have been included as taxable compensation to an employee or contractor.
d)Meals sold to a client or customer.
Transportation to and from client business meals is 100% deductible as it is a transportation deduction and not a meal deduction.
The 50% limit applies to:
– Client business meals.
– Meals provided at entertainment or sporting events.
– Meals provided for the convenience of the employer.
– Meals provided to employees occasionally and overtime employee meals.
– Meals during business travel.
– Meals in office during meetings and conferences.
– Meals included in a charitable sports package.
Example: Whether you are entertaining clients, providing a meal for employees during an extended series of meetings, or having a meal on the road while travelling for business, the meal will only be deductible at 50% of its cost regardless of whether you purchase the food at a restaurant or at a convenience or grocery store.
No deduction is available for entertainment, sporting event tickets, or club memberships. However, food and beverages provided during such events are still deductible up to the 50% limit as long as the cost is stated on a bill or receipt separately from the total entertainment cost.
Example: You entertain clients at a sporting event or club at your expense. During the event, food and beverages are provided. If your purchase for the food/beverage cost is stately on a bill or receipt separately from the other costs, you can deduct 50% of that separately stated amount that is due to food and beverages. That is the only business deduction you can take from an event of this type in 2023.
For more information on Meals and Entertainment Deductions for Businesses in Tax Year 2023 please contact our office.