Meal & Entertainment Expenses deductiblity

Many food, beverage or entertainment expenses that are directly related or associated with the active conduct of a trade or business are allowed to be deducted as business meal and entertainment expenses to the extent that they are not lavish and extravagant.  You must document details of these meals and entertainment meetings to comply with IRS rules.  Most qualified meals and entertainment are 50% deductible however some are 100% deductible.  The fully deductible benefits are often missed.

Generally only 50% of these meal expenses are deductible. A few examples that are generally 50% deductible are:

  1. Meals with current or perspective clients, customers, and vendors that will benefit the business.
  2. Meals directly related to business meetings of employees, stockholders, agents, and directors.
  3. Meals while on business travel status.
  4. Meals while attending a business seminar, convention, networking or any other form of meeting.

There are certain meal expenses that are 100% deductible.  A few examples that are generally 100% deductible are:

  1. Meal and entertainment expenses that are made available to the public, usually for advertising and promotional purposes (expenses of sponsoring a TV/radio so or food given away free to the public).
  2. Meal and entertainment expenses primarily for employees who are not highly compensated (holiday party, team building event or company picnic).
  3. Office snacks and beverages provided to employees and customers at the office.
  4. Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer (meals provided for working late or on weekends for the employer’s convenience).
  5. Meals for which the business is reimbursed for the expense (common for attorneys).
  6. Meals and entertainment expenses for an event that benefits a qualified charitable organization, the entire net proceeds go to the charity and event uses volunteers to perform substantially all of the work.

You should maintain three separate “Meals & Entertainment” accounts on your books and must document details of each meal or event.

  1. “Meals & Entertainment 50%”
  2. “Meals & Entertainment 100%”
  3. “Meals & Entertainment NOT DEDUCTIBLE” (if no business purpose or no documentation).

This is based on what generally applies. Exceptions may apply, be sure to discuss your unique situation with your CPA.