How to Maximize Tax Deductions from Your Meals and Entertainment

There have always been many questions surrounding tax deductions for business meals and entertainment. The past two years had very generous tax deductions thanks to President Biden’s Consolidated Appropriations Act of 2023. Businesses were able to deduct 100% of business-related food and beverages provided by a restaurant. Obviously, this was an attempt to help the foodservice industry recover from the pandemic.

Back to the Old Tax Rules

The tax rules have changed for 2023. Food and entertainment deductions are now back to pre-pandemic standards that were originally set in the Tax Cuts and Jobs Act (TCJA) of 2017. Most business meals offer a 50% tax deduction again this year, and a majority of entertainment expenses are not deductible at all.

There are still some business meal expenses that are 100% deductible in 2023:

• Meals sold to a customer or client
• Office holiday party/corporate picnic
• Team-building events
• Meals provided to employee or contractor as taxable compensation
• Food offered to public for free

Here are items that are only 50% deductible in 2023:

• Coffee, water and snacks provided at office
• Business travel meals
• Business meeting meals
• Meals for employees that benefit employer
• Seminar/conference meals
• Client business meals
• Meals as part of charitable sports packages

Here are the items that are not deductible in 2023:

• Meals during entertainment that aren’t invoiced separately
• Tickets to sporting events
• Club memberships and expenses
• Transportation costs to/from a client business meal

Which Entertainment Expenses Are Deductible?

Most entertainment expenses will not be tax deductible this year, but some are still eligible for at least a partial deduction. It’s important to consult with your tax advisor to understand what can and cannot be deducted in terms of business meals, entertainment and other such expenditures.

How to Maximize Tax Deductions

There are still ways to maximize business meal and entertainment deductions. Don’t skimp on business client meals, especially if they are leading to more business. The 50% deduction is worthwhile. The same is true for providing meals for your employees. It may be part of your overall compensation package, which would allow for 100% deduction. Or, it provides a 50% tax deduction if you are providing food that ultimately benefit you as the employer. Examples might include bringing meals in for employees working overtime, as additional motivation during special projects, as a special reward, or as way to simply keep the employee on site for more productivity.

Take advantage of the 100% deductible expenses when you can, but maximize your tax deductions with the 50% items like snacks, travel meals and the ideas listed above.

It is very important to track all your travel expenses, business meal expenses and entertainment expenses separately. You may even want to set up a different account just for tax-deductible meals and entertainment. Track every expense carefully and categorize them bases on the percentage of deductibility to ensure there are no mistakes.

To build a better business tax plan for 2023 and to maximize all your eligible tax deductions this year, contact Illumination Wealth today to consult with one of our top advisors.