Exceptions to 100% Deduction for Business Meals
Certain meal expenses continue to be only 50% deductible, including:
- Food and beverages not for immediate consumption, including those products purchased from grocery, specialty food, beer, wine, or liquor stores, pharmacies, drug stores, convenience stores, newsstands, vending machines, or kiosks.
- Meals provided at eating facilities located on the employerβs business premises which are used in furnishing meals excluded from an employeeβs gross income.
- Meals provided at employer-operated eating facilities which are treated as a de minimis fringe under Sec. 132(e)(2), even if that eating facility is operated by a third party.
Entertainment Expenses
- Anything considered to constitute entertainment, amusement, or recreation is nondeductible, including the cost of facilities used in connection with these activities. This is unchanged from 2018 tax reform.
Changes to the deductibility of meals and entertainment expenses following the CAA:
|
Type of Expense |
Under 2018 Tax Reform |
Under 2021 CAA |
|
Recreational or social activities for employees (e.g. summer picnic, holiday party, etc.) |
Fully deductible |
Fully deductible |
|
Business meals (e.g. meals for out-of-town travel, meals during business discussion with clients, etc.) |
50% deductible if not lavish or extravagant |
100% deductible if not lavish or extravagant and purchased from a qualifying restaurant (see above) |
|
Entertainment-related meals |
Nondeductible, unless separately stated from the cost of the entertainment β if so, 50% deductible |
Nondeductible, unless separately stated from the cost of the entertainment β if so, 50% deductible |
|
Sporting events, concerts, etc. |
Nondeductible |
Nondeductible |
|
De minimis items provided to employees at the office (e.g. coffee, snacks, water, etc.) |
50% deductible |
50% deductible |
|
Meals provided at the convenience of the employer at an on-site eating facility |
50% deductible |
50% deductible |
|
Goods, services, and facilities made available to the general public (e.g. grand openings, etc.) |
Fully deductible |
Fully deductible |
It is important to review how your meals and entertainment expenses are categorized. Long ago, the characterization between meal and entertainment expenses was irrelevant because the treatment was the same. In light of 2018 tax reform, and now the 2021 CAA, it remains important to segregate entertainment expenses from meal expenses. If you have further questions, you should reach out to your trusted tax planning advisor.
