Can I deduct meals and entertainment expenses for my small business?

Staying on top of the latest tax rules for meals and entertainment expenses is important. In recent years, the IRS updated these rules first with the Tax Cuts and Jobs Act (TCJA) of 2017 and then again during the COVID-19 pandemic. Here are the latest rules effective in 2023 so you are prepared for tax filings.

Deductions for Meals

Meals that are 100% deductible:

  • Food at a company party or team-building event
  • Meals included as taxable compensation to employees or contractors
  • Food made available to the general public at your place of business or at a sales event

Meals that are 50% deductible:

  • Business meals including meals while traveling
  • Meals provided to employees during training classes or onsite meetings
  • Meals provided to employees working after hours

Deductions for Entertainment

In 2023, the tax deductibility of entertainment expenses is significantly limited:

  • Most entertainment expenses are not deductible as business expenses
  • According to the IRS, entertainment is “any activity which is of a type generally considered to constitute entertainment, amusement, or recreation”
  • This applies to sporting events, concerts, theater events, hunting trips, etc.

Business Purpose Requirement

To claim deductions for meals, it’s essential to meet the business purpose requirement. In 2023, the IRS will scrutinize expenses closely to ensure they serve a legitimate business purpose:

  • Expenses must be directly associated with operating your trade or business
  • You or your employees must be present during the meal and the meal should not be extravagant

Do receipts matter?

Proper record-keeping is essential when it comes to deducting expenses. Businesses should maintain meticulous records to substantiate their claims:

  • The IRS requires businesses to keep receipts for expenses $75 and up
  • Document: who attended the meal, the date, and the location
  • We recommend an electronic filing system like QuickBooks Online where receipts can be digitally attached to transactions
  • We also recommend setting up separate General Ledger accounts to track 50% deductible meals, 100% deductible meals, and entertainment. This will make tax prep easier if the transaction types are isolated in their own accounts

How do I keep up with all of these rules and ensure my books are ready for an audit?

Navigating the complexities of tax regulations can be challenging. With the right guidance from a trusted CPA firm, you’ll ensure your business takes full advantage of available deductions while staying in compliance with the law.

Trust our expert team at Walker Glantz to handle all your accounting and tax filings. Let’s work together to make sure your tax filings are accurate and your books are well maintained.

Contact us today to get started!