Meal and Entertainment Deductions

Kort Redick, CPA & Leanne Tarleton

The IRS has made many changes to tax laws regarding meal and entertainment deductions for businesses. These changes have created a great deal of confusion when determining what types of meals and what percentage of meals are deductible.

The first large change to meal and entertainment deductions began in 2017 with the Tax Cuts and Job Act. This act eliminated almost all deductions for entertainment expenses that incurred after 2017.

A more recent act, the Consolidated Appropriations Act, created temporary rules for meal deductions. This act was passed in 2020 and increased some meal deductions to 100% for expenses paid or incurred in 2021 and 2022. Prior to the Consolidated Appropriations Act, meals were typically 50% deductible.

For a meal to be 100% deductible in 2021 and 2022, the food must be from a restaurant and either the taxpayer or at least one of the taxpayer’s employees must be present. Although the meal must be from a restaurant, the meal does not need to be consumed at the restaurant. Meal expenses from restaurants include additional charges for takeout, delivery tips, and other related fees. Businesses that primarily sell pre-packages foods, such as grocery stores and convenience stores, are not considered restaurants and are not 100% deductible. Additionally, the meals must be ordinary and necessary; they cannot be extravagant or luxurious.

Below are some common examples of meals that are always 100% deductible:

• Meals that are provided at companywide events such as holiday parties.

• Meals provided to the public for free.

• Meals provided to employees that are included on the employees’ W-2s as taxable compensation.

• For business that sell food, the meals that are provided to their employees for free when the employee is not working.

These are a few meals that are typically 50% deductible but will temporarily be 100% deductible in 2021 and 2022 when the meal is provided by a restaurant:

• Meals provided to employees at business meetings.

• Meals provided to employees for the benefit of the employer. This includes meals provided for employees working late, working through their break, or coming to work on a day off.

• Meals during travel that is related to existing business.

• Meals that are shared with clients or prospective clients.

• Meals provided at an entertainment event if the meals are purchased independently from the entertainment and have a separate invoice or receipt.

Meals that are still 50% deductible even in 2020 and 2021:

• Snacks and coffee that are provided to employees in the office.

• Meals provided to employees that are not from a restaurant.

Meals and entertainment that are nondeductible:

• Meals provided at entertainment events that are not separate from the cost of the entertainment and that do not have separate invoices or receipts.

• Tickets for sporting events.

• Club memberships.

• Meals for clients if the taxpayer or one of the taxpayer’s employees is not present for the meal.