Can I deduct meals and entertainment expenses?

by | Jun 6, 2025 | Business Taxes, Deductions & Write-Offs

Here’s what HIVE AI had to say about “Can I deduct meals and entertainment expenses?”:

The deductibility of meals and entertainment expenses has undergone significant changes in recent years, particularly following the Tax Cuts and Jobs Act (TCJA) of 2017. Understanding these rules is crucial for proper tax compliance and maximizing legitimate business deductions.

Current Status of Entertainment Expenses

Entertainment expenses are generally nondeductible. IRS – Publication 463: Travel, Gift, and Car Expenses This represents a fundamental shift from prior law, where entertainment expenses could be deductible under certain circumstances. Generally, entertainment expenses, membership dues, and facilities used in connection with these activities cannot be deducted. IRS – Instruction 1120-PC: Instructions for Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return You can no longer take a deduction for any expense related to activities generally considered entertainment, amusement, or recreation. IRS – Publication 463: Travel, Gift, and Car Expenses

The definition of entertainment is quite broad and includes any activity which is generally considered to constitute entertainment, amusement, or recreation. Included is entertaining at nightclubs, cocktail lounges, theatres, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips. IRS – Publication 5602: Attorneys Audit Technique Guide An objective test is used to determine whether an activity is of a type generally considered to be entertainment. Thus, if an activity is generally considered to be entertainment, it will be treated as entertainment for purposes of this section and section 274(a) regardless of whether the expenditure can also be described otherwise, and even though the expenditure relates to the taxpayer alone. Tresuary Reg. 1.274-11

Business Meal Deductions

While entertainment expenses are generally nondeductible, business meals remain partially deductible under specific conditions. However, you may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. IRS – Publication 463: Travel, Gift, and Car Expenses Generally, entertainment expenses are not deductible if paid or incurred after December 31, 2017, but business-related meal expenses remain 50 percent deductible. IRS IRM 21.6.6 Specific Claims and Other Issues

Requirements for Deductible Business Meals

To qualify for the business meal deduction, several specific requirements must be met. Under current guidance, taxpayers may deduct 50 percent of an otherwise allowable business meal expense if: 1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business; 2. The expense is not lavish or extravagant under the circumstances; 3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages; 4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and 5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. Notice 2018–76

The statutory requirements under Section 274(k) provide that no deduction shall be allowed under this chapter for the expense of any food or beverages unless— (A) such expense is not lavish or extravagant under the circumstances, and (B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages. IRC § 274(k)

Separation of Food and Entertainment Costs

A critical aspect of the current rules involves the proper separation of food and beverage costs from entertainment expenses. Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. IRS – Publication 463: Travel, Gift, and Car Expenses However, the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. IRS – Publication 463: Travel, Gift, and Car Expenses

The regulations provide specific guidance on this separation requirement. If the food or beverages are not purchased separately from the entertainment, or the cost of the food or beverages is not stated separately from the cost of the entertainment on one or more bills, invoices, or receipts, no allocation between entertainment and food or beverage expenses may be made and, except as further provided in this section and section 274(e), the entire amount is a nondeductible entertainment expenditure under this section and section 274(a). Tresuary Reg. 1.274-11

Practical Examples

The regulations provide helpful examples to illustrate these principles. In one scenario, the basketball game is entertainment as defined in § 1.274-11(b)(1), and, thus, the cost of the game tickets is an entertainment expenditure and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages is an entertainment expenditure that is subject to disallowance under section 274(a)(1) and paragraph (a) of this section, and C may not deduct the cost of the tickets or the food and beverages associated with the basketball game. Tresuary Reg. 1.274-11

However, when costs are properly separated, the cost of the food and beverages, which is stated separately on the invoice for the game tickets and reflects the venue’s usual selling price of the food and beverages if purchased separately, is not an entertainment expenditure and is not subject to the disallowance under section 274(a)(1) and paragraph (a) of this section. Therefore, C may deduct 50 percent of the expenses associated with the food and beverages provided at the game if the expenses meet the requirements of section 162 and § 1.274-12. Tresuary Reg. 1.274-11

Temporary 100% Deduction for Restaurant Meals

There is currently a temporary exception to the 50% limitation for certain restaurant meals. However, § 274(n)(2)(D) provides a temporary exception to the 50-percent limitation for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023, for food or beverages provided by a restaurant. Notice 2021-63 In addition, a temporary exception to the 50 percent deduction limit allows a 100 percent deduction for food or beverages provided by a restaurant and paid or incurred after December 31, 2020, and before January 1, 2023. IRS IRM 21.6.6 Specific Claims and Other Issues

Substantiation Requirements

All meal expenses remain subject to strict substantiation requirements under Section 274(d). No deduction or credit shall be allowed— (1) under section 162 or 212 for any traveling expense (including meals and lodging while away from home), (2) for any expense for gifts, or (3) with respect to any listed property (as defined in section 280F(d)(4)), unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement (A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit. IRC § 274(d)

Traveling expenses (including meals and lodging while away from home), however, remain subject to the section 274(d) substantiation requirements. Food and beverage expenses are subject to the substantiation requirements under section 162 and the requirement to maintain books and records under section 6001. T.D. 9925

The substantiation requirements are particularly stringent and preclude use of the “Cohan rule” to estimate the amounts of deductions subject to that section. Dawson U.S. Tax Court Opinions: John E. Rogers & Frances L. Rogers Substantiation by adequate records requires the taxpayer to maintain (1) an account book, diary, log, statement of expense, trip sheets, or similar record prepared contemporaneously with the expenditure and (2) documentary evidence, such as receipts or paid bills, which together prove each element of an expenditure. Dawson U.S. Tax Court Opinions: Mark Weiderman & Jennifer Weiderman

Travel Meal Expenses

For meals consumed while traveling away from home on business, the rules are somewhat different. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including— (1) a reasonable allowance for salaries or other compensation for personal services actually rendered; (2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business. IRC § 162(a)

A deduction for meal expenses may be available for meals (other than amounts which are lavish and extravagant under the circumstances) consumed while traveling away from home in pursuit of a trade or business. Away from home pursuant to IRC 162(a)(2) means traveling away from home in the pursuit of a trade or business that requires sleep or rest to properly perform duties. IRS IRM 21.6.6 Specific Claims and Other Issues

Percentage Limitations

The general rule is that the amount allowable as a deduction under this chapter for any expense for food or beverages shall not exceed 50 percent of the amount of such expense which would (but for this paragraph) be allowable as a deduction under this chapter. IRC § 274(n) Section 274(n) further limits deductions for most meal and entertainment expenses to “50 percent of the amount of such expense or item which would * * * be allowable as a deduction under this chapter.” Dawson U.S. Tax Court Opinions: John E. Rogers & Frances L. Rogers

However, there are exceptions to this 50% limitation, particularly for certain transportation workers. A higher percentage may be deducted if meals are consumed while a taxpayer is traveling away from home and is required to remain away from home overnight during, or incident to, any period of service subject to the Department of Transportation’s (DOT) hours of service limits. The deductible percentage for tax year 2008 and subsequent years is 80 percent. IRS IRM 21.6.6 Specific Claims and Other Issues

In summary, while entertainment expenses are generally nondeductible, business meals can still be deducted at 50% (or 100% for restaurant meals through 2022) if they meet specific requirements including business purpose, presence of the taxpayer or employee, and proper substantiation. The key is understanding the distinction between entertainment and business meals, ensuring proper documentation, and maintaining separate billing when food is provided in conjunction with entertainment activities.

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