Meals and Entertainment, as most bookkeeping software categorizes it, are a hot topic for a business write-off.
From a business perspective, we recommend you record all business meals and entertainment in your bookkeeping software and worry about if they are deductible later...but only if they have a business purpose.
Dinners out with your family should not be in your business books and not be paid for by your business credit card.
We cover more about what is business related below.... and what can be deducted on your tax return.
This is an area where tax rules have changed and changed again, as such determining what is deductible likely will be determined at the meeting with your tax preparer.
Receipts or no receipts?
We always recommend keeping your business taxes and books above board and it is especially important as business meals and entertainment are an area that is highly scrutinized.
Receipts themselves, may not be enough. Documenting who the meal was with and why it related to business is key.
Let's talk about what can and can't be deducted for business meals and entertainment, and what supporting documents you should keep along the way.
Business Meals as a tax deduction
Tracking your business meals and keeping receipts is a business best practice.
What makes a meal a business meal that qualifies for a deduction?
Was the meal ordinary and necessary for your business? If so, you can deduct it, or a portion of it.
If you are meeting with a client, on business travel, having a team-working meeting... these are all business meals that qualify. We cover more examples of what qualifies below.
Typically meals that are bought for only you, the business owner, are not deductible unless you are on business travel.
So that drive-thru Starbucks or McDonalds on your way to work or even on your way to a client, it's a no-go for a business meal and should be treated as a personal expense.
Examples of business meals and entertainment
Here are some examples of what is deductible and not deductible by the IRS.
Note that the deductibility of meals and entertainment may vary by state as states have different rules and don't always conform with the rules of the IRS.
- Client meeting at a restaurant or coffee shop
- Prospective client meeting at a restaurant or coffee shop
- Buying the team lunch for a working meeting
- Meals on business travel (actual expenses or per diem allowed)
- Buying drinks with clients at a social happy hour
- Food or drinks at a convention or conference
- Food or drinks with clients at a baseball game, country club, or concert
- Any meal, coffee or donut purchased for a business owner or employee to consume solo
- Taking your family out to dinner
- Grabbing a Starbucks or Chic-fil-A on the way to a client
- Tickets to a baseball game or concert, even if you are taking clients
- Dues for a country club
For meals that qualify, can I deduct all of it?
In 2020 and 2021, the IRS allowed 100% deductibility of meals purchased at restaurants and 50% deductibility of meals purchased at convenience locations.
This was short-lived as we return to pre-pandemic rules in 2022.
In 2022, the deductibility of all meals has reset back to 50% regardless of where the meals were purchased.
Entertainment continues to be non-deductible at the federal level.
Note that states may or may not conform to these rules.
How do I document a business meal?
As business meals is a highly scrutinized area for business deductions, keeping receipts and records is a must.
The simplest way to keep records and what we recommend for our clients is to take the paper receipt and write on it immediately, WHO and WHY.
WHO the business meal was with and WHY there was a business purpose.
Example: Working meeting with IT team through lunch, coffee with prospective client, Bob Smith, networking with Amy Davis, - attorney
If you use QuickBooks Online, the iPhone app has a "Receipt Capture" feature that takes seconds. After you write on your receipt, scan it and then you can discard it.
If you don't use this, there are other receipt apps out there that work just as well.
If you don't scan and record it immediately, the receipt is too easy to lose and be lost forever.
If you are a shoe-box receipt kind of guy/gal, try finding and reading a receipt from 2 years ago and tell me if it's legible. The ink fades. Scanning and saving it is going to be your best bet.
Record keeping is a must for writing off business meals. If a business meal is ordinary and necessary for your business, it can be deducted on your taxes.
Track all business meals and entertainment and worry about whether it's deductible or not when you file your taxes.
Entertainment is non-deductible at the federal level, but may have state deductions available.
Meals and drinks purchased at an entertainment event, that have a business purpose can be deductible.
Any meal purchased on business travel is deductible.
Take a minute of your time today to capture your receipt with WHO and WHY it was business related, scan and save it to stay above board with documentation.
>>> Click here to download our free ebook guide on what meals and entertainment you can deduct.