In the business world, you may have to spend some time wining and dining with potential clients, business partners, vendors, or employees. So, what can you deduct on your tax return for these types of expenses?
In 2018 the Tax Cuts and Job Act (TCJA) was implemented. The TCJA eliminated business deductions for “entertainment, amusement, or recreation.” This includes entertainment items such as the theater, sports events, music events, fishing trips, and much more. The TCJA left many confused about whether or not business related meals are included and are no longer considered a tax deduction. But have no fear. Fortunately, the TCJA allows deductions on business-related meals, as long as they meet set guidelines.
You can deduct 50 percent of meal and beverage costs as a business expense. The following must be true in order to prove the meal is business related:
The expenses must be “ordinary and necessary” in carrying on your business.
This means your food and beverage costs are appropriate and of the norm. They cannot be extremely lavish or extravagant. There are no guidelines as to what qualifies as extravagant so you must use your best judgment.
The expenses must be directly related or associated with your business.
This means you must expect to receive a concrete business benefit from these meals. The main purpose of the meal must be business. You can’t go out with a group of friends or colleagues for the evening, discuss business with one of them for a few minutes, and then write off the check.
You must be able to substantiate the expenses.
There are requirements for proving that meal and beverage expenses qualify for a deduction. You must be able to establish the amount spent, the date and place where the meals took place, the business purpose and the business relationship of the people involved.
But, what about meals that are eaten at an entertainment event? For example, you’re at a baseball game with potential clients and order hot dogs for everyone there. Can you count this food as a business-related meal?
You can still deduct 50% of food and drinks incurred at entertainment events, but only if business was conducted during the event or shortly before or after.
You should keep close records of your business expenses, including meals, in case the IRS conducts an audit on your business. If you have any questions as to what qualifies as a business tax deduction or need accounting services in Springfield Missouri, contact Schultz, Wood, & Rapp P.C.