How to Deduct Meals and Entertainment for 2020
One of the common topics that comes up with small business owners is regarding deductions for business-related meals and entertainment.
We put together a quick guide to help you understand the tax implications of these expenses.
In summary, here's a quick reference of deductibility per type of expense:
Type of Expense Deduction
Entertaining clients (concert tickets, golf games, etc.) 0% deductible
Business meals with clients 50% deductible
Office snacks and meals 50% deductible
Company-wide party 100% deductible
Meals & entertainment (included in compensation) 100% deductible
Fully Deductible Meals and Entertainment
Here are some common examples of 100% deductible meals and entertainment expenses:
A company-wide holiday party
Food and drinks provided free of charge for the public
Food included as taxable compensation to employees and included on the W-2
50% Deductible Expenses
Here are some of the most common 50% deductible expenses:
A meal with a client where work is discussed (that is not lavish)
Employee meals at a conference, above and beyond the ticket price
Employee meals while traveling
Treating a few employees to a meal (but if it is at least half of all employees, it is 100 percent deductible)
Food for a board meeting
Dinner provided for employees working late
Entertainment Tax Deduction
If you were deducting meals and entertainment in previous years, you might have noticed the deduction amounts have changed. The 2018 Tax Cuts and Jobs Act brought a few big changes to meals and entertainment deductions.
The biggest one: entertainment expenses are no longer deductible. But some things have not changed.
We've provided a summary table of the most popular deductions, and how they have changed since 2017:
Type of Expense 2017 (old rules) 2018 (new rules) 2019 (new rules)
Entertaining clients 50% deductible 0% deductible 0% deductible
Business meals with clients 50% deductible 50% deductible 50% deductible
Office snacks and meals 100% deductible 50% deductible 50% deductible
Company-wide party 100% deductible 100% deductible 100% deductible
Meals & entertainment* 100% deductible 100% deductible 100% deductible
*included in compensation
So, What is Nondeductible?
Most work-related meal purchases you can think of are either 100 or 50 percent deductible. But there are a few exceptions. For example, if you pay for your clients’ night out but you do not actually go with them, it is nondeductible. The same applies to a client meal at a restaurant where you invite friends or spouses—the cost of your friends is nondeductible (but you can write off half the client bill).
And of course, with the Tax Cuts and Jobs Act, client entertainment is also nondeductible—no more golf games or courtside tickets.
We hope this helps you with your business planning. If you have any questions, don't hesitate to reach out to us.