Updated Information on Business Meal and Entertainment Deductions
If you’re a business owner, you might be eligible for the meals and entertainment deduction to reduce your tax burden. However, this deduction has undergone significant changes in recent years, so it's crucial to stay informed about how it operates. We will help you grasp what is currently deductible and how to maximize this tax benefit.
Overview of Meal and Entertainment Deductions
For many businesses, engaging with potential or existing customers, suppliers, or partners is vital for growth and sustainability, according to Eric Nisall, a small business accountant in South Florida. Any money spent on business-related meals and drinks by you or your employees falls under "meals and entertainment expenses," Nisall explained. These expenses must be both industry-standard and beneficial to your business. Allowable examples include taking a client to dinner to secure a deal or meeting a supplier for drinks to negotiate pricing.
Changes in Deduction Rules Under the TCJA
The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant modifications to what business owners can deduct on their taxes. Two ways the TCJA impacted meals and entertainment deductions are:
There are exceptions, such as fully deducting occasional meals for employees or snacks of nominal value. For clarification on complex TCJA rules, consult an accountant.
Recent Changes in 2020
To assist businesses during the ongoing public health and economic crisis, the Taxpayer Certainty and Disaster Relief Act of 2020 was passed. This Act allows businesses to deduct 100% of the cost of business-related restaurant meals consumed from January 1, 2021, through December 31, 2022. Previously, only 50% was deductible. To qualify for the increased deduction, either the company owner or an employee must be present during the meal, which must not be considered lavish.
What You Can and Cannot Deduct
After legislative changes, deductible expenses include business-related restaurant meals, occasional employee meals, office holiday parties, and snacks for employees. Nondeductible expenses are entertainment-related costs like concert tickets and golf games. The increased restaurant meal deduction will revert to 50% after December 31, 2022, and the ability to write off cafeteria meals for employees will end on December 31, 2025.
How to Deduct Your Expenses
Reporting business meal expenses is straightforward regardless of your tax filing method. Record the expense amount on the appropriate line of your tax forms and use tax software for ease. Detailed record-keeping and maintaining expense-related receipts are crucial in case of an IRS audit.
Frequently Asked Questions (FAQs)
- How do you prove expenses for the meals and entertainment deduction? Keep detailed records and receipts for dining experiences over $75.
- Where do I deduct meals and entertainment on my tax return? File those expenses on the appropriate tax form for your business structure.
- How much can I deduct for business meals? You can deduct 100% of restaurant meals until December 31, 2022, along with other specified percentages for different expenses.
