This article clarifies some common misconceptions related to tax deductions for business meals and entertainment. Generally business tax payers can only deduct 50% of entertainment expenses. However, there are some exceptions where they can deduct 100%. Keep reading to see how much of your businesses meals and entertainment expenses you may be able to deduct and make sure you are taking advantage of the items that are allowed 100% deduction.
Businesses can deduct meals and entertainment expenses that are ordinary and necessary in the course of business and that are not lavish or extravagant under the circumstances. The deduction is limited to 50% unless they meet one of the following exceptions.
Exceptions to the 50% Limit
There are some exceptions where the taxpayer is allowed to claim 100% of the expenditure, as follows:
- Company holiday party or picnic
- Meals provided for the convenience of employer (All meals provided on the premises are treated as provided for the convenience of the employer)
- Must include more than ½ of the employees, or
- Provided to employees, on an occasional basis, who work overtime
- Office snacks such as coffee, soft drinks, water, etc. provided on business premises
- Expenses for goods, services, and facilities made available to the general public and / or for a fundraising event or charity
- Employer provided services, including an employee cafeteria
- Amounts paid for meals and entertainment where the taxpayer is in the business of providing meals and entertainment
*It is important to keep accurate records of all business expenses. Receipts that substantiate meals and entertainment expenses are a must and the IRS will look for you to have the proper documentation such as the time and place, business purpose, and attendees. It is also recommended that you have two general ledger accounts to track the 50% and 100% deductible expenses separately.
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