Meals are back to being only 50% deductible after being 100% deductible during the pandemic. Businesses should have three categories of meals and entertainment to account for the following:
Non Deductible:
- Entertaining clients, prospects, etc. even if a business was conducted immediately prior to or after the entertainment
- Events put on for the benefit of customers, prospects, etc.
- Lavish or extravagant meals
50% Deductible
- Overnight business travel meals
- Meals provided for the convenience of the employer
- Business meetings of employees, stockholders, agents or directors
- Expenses for attendance at a business meeting or convention, business league, boards of trade
- De minimis fringe benefit employee meals (i.e. coffee, monthly treats for birthdays, etc.) This cost was previously fully deductible, and the 50% deduction will be eliminated after the year 2025.
The costs must be ordinary and necessary business expenses, not lavish or extravagant, and the business owner or employee must be present.
100% Deductible:
- Meals and entertainment expenses treated as compensation to the employees
- Meals and entertainment reimbursed to the company
- Office holiday parties, picnics, and summer outings
- Items available to the general public as a means of advertising or promoting goodwill in the community, such as complimentary beverages offered in your lobby.
- Expenses includible in income of persons who are not employees – i.e. prizes or awards.
