Meals & Entertainment
Taxpayers need to play close attention with laws always changing as to what and when they can deduct meals and entertainment, as there are many stipulations that go into qualifying for these deductions. Currently businesses can only deduct 50% of meals purchased from a restaurant.
The Tax Cuts and Jobs Act was introduced in 2018, and it affected what business owners can deduct on their taxes. Under T.D. 9925 you must satisfy two conditions to be able to deduct meals. The conditions are the meal isn’t lavish under certain circumstances and the taxpayer, or the employee of the taxpayer is present while the food or drinks are furnished. If these are met the taxpayer can deduct 50% of the meals cost. To get more information on these topics see Treas. Reg. §1.274.
Travel Meals
When traveling you must meet the same conditions stated above to receive the deduction. Meals for spouses, dependents, and other individuals traveling with a taxpayer’s employee are nondeductible unless they’re employed by the same company or their presence on the trip is necessary for business purposes.
Meals at Recreational or Social Events
Recreational and Social events aren’t subject to 50% deduction limitation. The regulation doesn’t apply to highly compensated employees or employers with over 10% interest in their employer’s company. Companies may deduct their entire meal and beverage if it is for one of the following activities: If the meals are from the company cafeteria, catered at an open house staged by the real estate agent, the meal is served at seasonal camps for the camp counselors, and if the meal is furnished by a restaurant or a catering service for its employees.
De minimis fringe benefits
Section 274(o) stipulates that starting from December 31, 2025, employers will be disallowed from deducting expenses incurred while operating a facility described in Section 132(e)(1) or costs of providing food and drinks in such facilities. Consequently, the food and drinks companies provide for their employees at the company’s cafeteria or similar facilities will become entirely non-deductible from 2026.
Entertainment
With the ratification of the 2018 TCJA, you are no longer allowed to deduct entertainment expenses. Businesses are still able to deduct the meals that come with the entertainment if it is a separate expense.
Consulting with a tax professional is recommended to help maximize your benefits while ensuring compliance with tax laws. If you're already a client, please reach out to your current contact as we will be happy to discuss this topic further with you. If you're not already a client, please call 724.934.4880 and we'll be happy to discuss your situation further to determine how we can best help.
