As of January 2023, the tax deductions for meal and entertainment business expenses went back to pre-COVID amounts. As business owners plan their tax strategy for the remainder of the year, this guide will help to make sense of what’s deductible and how much. Per-diem rates also returned to pre-COVID deductibility of 50 percent.
At a glance, this drop-down menu can help business owners get a feel for which deductions are allowable and at what levels.
Overview of Meal Deductions for Businesses
These common expenses can be deducted at 50 percent for 2023.
- Business meals with clients or customers
- Food for the office such as soda, coffee and snacks for employees
- Meals provided in office for meetings of employees or owners.
- Meals while traveling for work
- Meals at a conference
Some meal deductions remain at 100 percent, like:
- Food and beverage costs for company holiday parties, summer picnics or team-building events
- Food and beverages to promote public goodwill such as coffee, water and snacks for customers
- Meals provided to employees for convenience of the employer such as in-office dinner expenses for employees who are working late
- Meals included as taxable compensation to employees or independent contractors
- Food for events to support a charitable cause
There are a few important rules to keep in mind for deductible meal expenses. An employee, owner, or manager must be present and the purpose must be directly related to work. And while the IRS does not maintain a list of approved restaurants, expenses should be ordinary and reasonable for the circumstances. It’s always recommended to document the date, total cost, name of restaurant, purpose, and who attended the meeting.
Receipts must be kept for meals above $75. Regardless of the cost, records should be kept for all business meals. These records should include date of the meal, location and purpose of the meal, name and titles of those in attendance, and the amount of the bill including tax and tip.
If a spouse or friend is present at the meal too, that’s fine; but their expenses cannot be deducted.
Business Entertainment Deductions
While deducting entertainment business expenses has been more limited since 2018, some costs are still approved. These include:
- Employee holiday party expenses
- Expenses for employee award or incentive trips
- Entertainment that’s included in employees’ wages
- There are exceptions for highly compensated employees, like officers, directors, or owners
- Entertainment sold to customers
- This is more common with hospitality establishments.
Additionally, not-for-profit organizations can claim entertainment expenses associated with business meetings or conventions for chambers of commerce, professional associations, and similar events.
Generally, tickets to entertainment events, golf outings and other sporting events, facility rental fees, and membership fees to facilities or clubs are nondeductible. If a business can get a separated or itemized receipt for food expenses at entertainment events like these, the food could still be deducted at 50 percent.
2023 Updates to Per Diem
Employee travel for work can be deducted using either actual expenses or the per diem method. In the latter, the employer reimburses the employee a set amount for lodging, meals, and incidentals. During COVID, the tax deduction for per diem expenses was temporarily at 100 percent; now, per diem is back to pre-COVID rate of 50 percent.
The U.S. General Services Administration (GSA) sets per diem rates for each fiscal year that begins on October 1. The current 2023 per diem rates are $59-$79.
Even though it seems straightforward, the IRS has many intricate rules for deducting meal and entertainment expenses. Contact your PBMares advisor or Construction and Real Estate Team Leader Jennifer French for more information.