A popular misconception among business owners is that you can deduct 100% of your business meals and entertainment. Contrary to popular belief this is not the case. The tax cuts and jobs act eliminated all deductions for entertainment costs. Simply put, taking a prospective client to a basketball game is no longer tax-deductible under the new tax code.
The good news is, you can still deduct SOME expenses when it comes to food and wining and dining clients.
Here are the rules for deducting expenses relating to food and entertainment as a business with the tax reform.
The rules are
- The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
- The expense is not lavish or extravagant under the circumstances;
- You as the business owner or an employee of the taxpayer is present at the furnishing of the food or beverages;
- The food and beverages are provided to a current or potential business customer, client, consultant, or a similar business contact; and
Assuming these conditions are met, then 50% of the cost is deductible!
Again, even if you are conducting business at an event, that cost is no longer tax-deductible. This includes trips, sporting events, the theater, a country club outing. What you ARE able to deduct is the cost of any food or drink that you consume during these outings.
The IRS will still let you deduct food and beverage costs that are associated with entertaining when it comes to your business. The caveat is that you’re only able to deduct HALF of the total cost.
Here are a few examples from the IRS to help clarify meal costs:
Example #1: You take a business contact to a baseball game for which you purchase tickets. At the game, you buy hot dogs and drinks for you and your business guests. You can’t deduct the cost of the tickets, but the cost of the hot dogs and drinks are deductible (up to the 50% limit).
Example #2: You take a business contact to a basketball game and pay for tickets to attend the game in a suite where you have access to food and beverages. The cost of the tickets includes food and beverages, so no deduction is allowed. But if the invoice for the tickets separately states the cost of food and beverages, then that portion of the invoice for the food and beverages is deductible.
Unfortunately, the tax cuts and jobs act eliminated a popular deduction among business owners. The positive side is that you still are able to deduct SOME of these expenses.
When you are taking these expenses it is important to document when & where these expenses came from just in case.
If you have questions about your business taxes or are interested in business tax preparation, schedule a consultation to find out how we can help you and your business save as much money as possible, come tax season.
Keep in mind this is a general rule of thumb. Everyone’s business and tax situation is different. For more information on how you can benefit from deductions with your business schedule a consultation now.