In response to the pandemic, businesses were allowed to deduct meals purchased from a restaurant at 100%. That benefit has now expired, and beginning January 1, 2023 meals are back to being only 50% deductible. Businesses should have three categories of meals and entertainment to account for the following:
- 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
- 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.
- 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.