Writing off meals and entertainment for your small business can be pretty confusing. Some things are 100 percent deductible, some are 50 percent, and a few are nondeductible. It all depends on the purpose of the meal or event, and who benefits from it.
From a company-wide Beer Friday to a fancy steak dinner with your biggest client, we’ll walk you through the different meal deductions your business can take advantage of so you can save big on your tax return.
And if you need a bookkeeper (and tax expert) to guide you through some of this, check out Bench.
2021 meals and entertainment deduction
As part of the Consolidated Appropriations Act signed into law on December 27, 2020, the deductibility of meals is changing. Food and beverages will be 100% deductible if purchased from a restaurant in 2021 and 2022.
Here are some examples:
|Type of Expense||Deduction|
|Entertaining clients (concert tickets, golf games, etc.)||0% deductible|
|Business meals with clients||50% deductible|
|Office snacks and meals||50% deductible|
|Company-wide party||100% deductible|
|Meals & entertainment (included in compensation)||100% deductible|
Fully deductible meals and entertainment
Here are some common examples of 100% deductible meals and entertainment expenses:
- A company-wide holiday party
- Food and drinks provided free of charge for the public
- Food included as taxable compensation to employees and included on the W-2
50% deductible expenses
Here are some of the most common 50% deductible expenses (for 2021 and 2022, they are 100% deductible if purchased from a restaurant):
- A meal with a client where work is discussed (that isn’t lavish)
- Employee meals at a conference, above and beyond the ticket price
- Employee meals while traveling (here’s how the IRS defines “travel”)
- Treating a few employees to a meal (but if it’s at least half of all employees, it’s 100 percent deductible)
- Food for a board meeting
- Dinner provided for employees working late
Entertainment tax deduction
If you were deducting meals and entertainment in previous years, you might have noticed the deduction amounts have changed. The 2018 Tax Cuts and Jobs Act brought a few big changes to meals and entertainment deductions.
The biggest one: entertainment expenses are no longer deudctible. But some things haven’t changed.
Here’s a summary table of the most popular deductions, and how they’ve changed since 2017.
|Type of Expense||2017 (old rules)||2018 (new rules)||2019 (new rules)|
|Entertaining clients (concert tickets, golf games, etc.)||50% deductible||0% deductible||0% deductible|
|Business meals with clients||50% deductible||50% deductible||50% deductible|
|Office snacks and meals||100% deductible||50% deductible||50% deductible|
|Company-wide party||100% deductible||100% deductible||100% deductible|
|Meals & entertainment (included in compensation)||100% deductible||100% deductible||100% deductible|
So what’s nondeductible?
Most work-related meal purchases you can think of are either 100 or 50 percent deductible. But there are a few exceptions. For example, if you pay for your clients’ night out but you don’t actually go with them, it’s nondeductible. The same applies to a client meal at a restaurant where you invite friends or spouses—the cost of your friends is nondeductible (but you can write off half the client bill).
And of course, with the Tax Cuts and Jobs Act, client entertainment is also nondeductible—no more golf games or courtside tickets.