Meals and entertainment was the traditional term governing the deduction of business meals and entertainment expenses. After many controversial uses, the entertainment part was removed in the 2018 tax reform, but meals deductions at 50% remain. For 2021 and 2022, meals in restaurants are deductible at 100% as part of the COVID-19 Recovery Acts, but will revert to 50% in 2023.
Tax Reform: Meals and Entertainment
The significant change came a couple of years ago. 2018, all the tax reform made the entertainment part of meals and entertainment not deductible. Sorry. So if you used to get courtside tickets and fun trips and whatever for your clients, well, unfortunately, now none of that is deductible. Meals are still deductible, usually 50%, But there are some instances where we can get a 100% deductibility.
100% Meals Deduction for Morale Events
If you treat your entire business to lunch or dinner or something like that, that’s what we usually call employee morale, not meals and entertainment, and I think you only have to have half of your staff present to get that. So even if it’s not 100% participation, you would still be able to deduct a considerable portion of those meals. While meals will remain 100% deductible through the end of 2022, we’ll return to our more normal reduced deduction in 2023.
Entertainment is Not Deductible
Entertainment expenses are no longer deductible. This was a popular deduction with business executives, who would expense sports tickets, strip clubs, and other areas of entertaining clients. You can still deduct the meal that takes place alongside the entertainment, but the 2018 tax code change means that IRS is no longer permitting the deduction for the entertainment portion of the evening or outing.
Meals is a Deduction, not a Credit
While 100% deduction means you write off the entire amount, it’s a deduction and not a credit, so it still costs you money. If you are at the 24% tax bracket, you’ll recover 24% of the costs (instead of 12% in with a 50% deduction), but you don’t get to push the cost of dinner entirely on the government.