The rules around meals and entertainment deductions have changed significantly in recent years, directly impacting what your business can and can’t deduct. Before 2018, you could deduct 50% of both meals and entertainment expenses. Now, entertainment is no longer deductible, and meals are limited to 50%.
The Tax Cuts and Jobs Act (TCJA) of 2017 was a major turning point, making entertainment expenses nondeductible ( keeping most meals at a 50% deduction). In 2021 and 2022, the Consolidated Appropriations Act temporarily increased the meal deduction to 100% for restaurant meals to support businesses during COVID. However, in 2023 and 2024, the rules changed back to (TCJA), with business-related meals generally limited to a 50% deduction, while entertainment costs remain nondeductible.
Understanding Deductible Categories for Business Meals and Entertainment
The IRS allows different levels of deductions for meals, depending on the type of expense. For example, meals at company events or meals included as part of an employee’s pay are fully deductible, while client meals or meals during business travel are only 50% deductible. Entertainment expenses, such as tickets to sports events or concerts, are no longer deductible under current tax laws.
Staying updated with these changes and properly categorizing your expenses can help you follow IRS rules and avoid missing out on potential savings.
Here are some key tax deduction categories :
- 100% Deduction – Meals for All Employees:
- Company social events ( team-building activities or parties)
- Company picnics, annual celebrations, or other similar gatherings that include meals
Tip: To fully use the 100% meal deduction, you must understand which meals qualify. (Make sure to document meals given as part of an employee’s pay.)
- 50% deductible expenses: Business Meals
- Meals with clients, prospects, or employees at restaurants for business purposes.
- Meals purchased separately after a non-deductible entertainment activity (e.g., after a golf outing with a client)
- Meals during business travel ( IRS Travel definition) or conferences
- Snacks, coffee, or meals provided in the office for employees
Tip: Keep detailed records of business meals. Include date, place, who was there, and why. This helps prove the meal was for business.
- No Deduction – Entertainment:
- Taking a client to a sporting event, concert, or golf outing
- Lavish or extravagant meals (the determination is based on the circumstances) that go beyond what the IRS considers reasonable as detailed by the IRS.
New Opportunities for meals and entertainment deduction 2024
In 2024, additional scenarios for meals provided during trainings or for employees working late, which can be deducted at 50%. Meals during virtual team-building events ( food is provided or reimbursed for employees), can qualify for a 100% deduction as long as it’s company-wide.
Business owners should also remember that charitable event tickets are no longer deductible, but the meals at these events may still qualify for a 50% deduction if separated from the ticket costs.
For small businesses, being aware of these deduction categories can help you optimize your tax savings by properly classifying and tracking each type of expense. Discover small business tax deductions you can’t afford to miss.
Common Mistakes to Avoid
To get the most out of your business meal deductions, avoid these common pitfalls:
- Lack of documentation: Failing to keep accurate records can result in lost deductions. Always include the purpose of the meal, attendees, and the cost in your expense logs.
- Misclassifying expenses: Make sure you don’t mistakenly classify nondeductible entertainment expenses as deductible meals. The IRS has strict guidelines, so it’s important to categorize expenses correctly.
- Overlooking employee meals: Meals provided to employees, especially those during meetings or office hours, can sometimes be overlooked when they might qualify for deductions. Be aware of these opportunities.
Keep Records and Maximize Your 2024 Meals Deduction
For small business owners, keeping your records organized is the key to getting the benefits of the meals and entertainment deduction 2024. The IRS needs you to document everything (attendee names, restaurant details, business purposes, and dates). it can help you if you’re ever audited, you’ll have the necessary documentation to support your claims.
Also, It’s important to control your expense fluctuations (for example, high expenses in comparison to prior years may raise red flags with the IRS). Remember that there may be consequences for not providing the required paperwork, such as repaying taxes with interest.
If you want to maximize your business meal deduction in 2024, you might think about consulting a tax expert. They can help you take advantage of all possible deductions and assist you in appropriately classifying and tracking your costs.
You can start by booking a free consultation Here.
