Tips & Tricks for Deducting Meals & Entertainment Expenses

by | Sep 28, 2022 | Business, Taxes

The only tax deduction category that gets business owners hyped? Meals and entertainment! And it makes sense—you used to be able to use fancy meals and events to snag clients while enjoying a reduction in your taxable income. 

But there have been some big changes over the past few years in tax deductions for service-based businesses as they relate to meals and entertainment. It seems like the IRS changes their mind on what should be tax deductible and how every year!

Not to worry – as your accountant, I’m here to help. This guide will give you some tips and tricks on how to deduct meals and entertainment expenses in 2022. 


Test your knowledge

To start, let’s give you a little test to see how much you already know about how to deduct meals and entertainment expenses. 

Here are three common business scenarios you might run into. Are they tax deductible? If so, how much of the expense is deductible?

  1. You throw a big year-end dinner party for your employees and their families
  2. You take your client out for a round of drinks
  3. You grab some granola bars from the gas station for you and your employee while out on the job

Jot down what you think and we’ll check your answers at the end. 


Meal expenses 

The Tax Cuts and Jobs Act of 2017 (TCJA) shook things up in the world of tax deductions for businesses. One big change was how the IRS handles business meal deductions. 

Prior to January 1, 2018, all business meals, office snacks, and employee meals at things like company parties were 100% tax deductible. Now, those items are capped at a 50% deduction. 

However, the federal government implemented some further changes to address COVID-19 economic concerns by passing the 2021 Consolidated Appropriations Act. For 2021 and 2022, buying meals from a restaurant is 100% tax deductible! 

If you want to buy your team lunch, provide office snacks, or meet your coworker for a business lunch, make sure to make those purchases from a restaurant to qualify for the max deduction. If you grab a box of Entenmann’s Donuts from the grocery store for the office, that purchase is only 50% tax deductible. 

Unfortunately, there doesn’t seem to be an extension of this added deduction coming any time soon. For the remainder of 2022, partake in all the business meals you want while they are still helping you out on your taxes. Create a plan for these expenses for next year so that your 2023 taxes don’t surprise you. Also, make sure when booking your meal expenses in your accounting software to designate which is which. This will help your accountant qualify you for the most deductions when April comes around.


The quick tip: for 2021 and 2022, restaurant meals are 100% tax deductible while other company food-related purchases are 50% deductible.


Entertainment expenses

The IRS has made it pretty convoluted to figure out how to deduct meals and entertainment expenses in 2022, as seen in the flip flopping of the meal expense deductions. The one thing they did come across very clearly on in their changes was entertainment expenses: they are NOT tax deductible.

Prior to 2018, many businesses took advantage of generous entertainment deductions. Anything you did to entertain a client, such as taking them out for a round of golf, was 50% deductible on the business’s tax return. The IRS caught wind of potential misuse of the deduction and did away with it entirely with the TCJA. 

Some other “entertainment” type expenses that are not tax deductible for service-based businesses:

  • Club memberships
  • Sporting event tickets
  • Transportation costs, like Ubers, to events and meals
  • Meals had with clients during entertainment, like company client mixers


The quick tip: sorry, entertainment expenses are not tax deductible.


Itemize your receipts

As your accountant, I probably don’t need the receipt for the $10 breakfast you bought your employees to file your tax return. However, keeping all receipts for any transactions your business has is a best practice that all service-based companies should employ. 

Should you ever undergo a financial audit by the IRS, they are definitely going to want any and all documentation you can provide to back up your transactions. If you claim a meals and entertainment tax deduction but can’t prove it when the auditors come calling, you may be facing some big penalties. 


The quick tip: keep your receipts!


Test your knowledge – how’d you do?

As your accountant, it’s my job to make sure you’re prepared with the info you need to run your service-based business. And now that you’ve read through these tips and tricks for how to deduct meals and entertainment expenses, you should be a pro at identifying what is tax deductible and what isn’t. 

Let’s circle back to those three business scenarios. Do you think they are tax deductible? If so, how much of the expense is deductible—50% or 100%?

  1. You throw a big year-end dinner party for your employees and their families
  2. You take your client out for a round of drinks
  3. You grab some granola bars from the gas station for you and your employee while out on the job

Now check your answers:

  1. 100% tax deductible
  2. Not tax deductible
  3. 50% tax deductible


How’d you do? I hope you did great!

If you are still unsure which expenses qualify for which amount of deduction, let’s chat! Book a call with me today.