In 2023, the deductions for meal and entertainment expense reverts back to the tax rules under Tax Cuts and Jobs Act of 2017 (TCJA). These deductions momentarily had changed for tax years 2021 and 2022 with the passing of the Consolidated Appropriations Act (CAA) of 2021, which created a temporary tax incentive allowing one hundred percent tax deduction of business-related meals purchased at restaurants. The CAA was set as a temporary relief to help boost the restaurant industry, due in part to the hard times that many restaurants had fallen on as a result of the COVID-19 pandemic.
For tax year 2023, several of the meals and entertainment deductions revert back from one hundred percent deductibility to fifty percent deductibility. Reference the below chart for a comparison of the deductibility of the 2022 and 2023 meals and entertainment expenses (list is not all inclusive).
|Type of Expense|
|Business meals with clients (must not be lavish or extravagant)||50%||100%|
|Cafeterias and employer-provided food, if part of taxable compensation for the employees such as an employer-sponsored meal program or cafeteria for employees (must be included on an employee’s Form W-2)||100%||100%|
|Entertainment expenses (concerts, golfing, sporting events, etc.)||0%||0%|
|Food for recreational employee events (e.g., holiday parties, summer events, team-building events, etc.)||100%||100%|
|Food provided to the public to promote goodwill (e.g., snacks or coffee for customers)||100%||100%|
|Entertainment-related meals (must be charged separately from other entertainment costs)||50%||100%|
|Meals provided in-office for meetings of employees, stockholders, agents, or directors. If greater than 50% of all employees are present, 100% deductible, otherwise 50%. Tax year 2022 contingent on if meal was purchased from a restaurant (100%) or grocery store (50%).||50%||100%|
|Meals provided to employees for the convenience of the employer (e.g., dinner for employees who work later at the office). 100% deductible if from a restaurant in the 2022 tax year.||50%||100%|
|Meals while traveling for business or conferences||50%||100%|
|Meals with employees and/or contractors (employees other than yourself & if greater than 50% of staff are present)||100%||100%|
|Meals with employees and/or contractors (employees other than yourself & if less than 50% of staff are present)||50%||100%|
|Meals, groceries & snacks for yourself or your family||0%||0%|
|Office snacks (does not apply to an S-corp owner if the only employee)||50%||50%|
In summary, exactly what is deductible in the 2023 tax year, and to what extent, depends on the circumstances. Following are some general guidelines.
- Food for recreational employee events, such as holiday parties, summer picnics, or team-building events
- Food provided to the public to promote goodwill (e.g., snacks or coffee for customers)
- Food for events in support of a charitable cause
- Meals that are an essential part of your business function (for example, if you are a food critic or food blogger)
- Meals provided to the employees for the convenience of the employer (e.g., dinner for employees who work late at the office)
- Meals included as taxable compensation to employees or independent contractors
- Meals sold to a client or customer
- Business meals
- Meals provided in-office for meetings of employees, stockholders, agents, or directors
- Employee meals at a company cafeteria if the annual revenue of the facility is equal to or greater than the costs
- Food items for employees, such as soda, coffee, or snacks
- Meals while traveling for work
- Meals at a conference
Even though the business meal rule has reverted back, entertainment in and of itself remains non-deductible. This permanent rule was created with the TCJA of 2017. Section 274(a) of the Internal Revenue Code (IRC) disallows in whole, or in part, certain expenditures for entertainment, gifts, and travel which would otherwise be allowable under Chapter 1 of the Code. Per Internal Revenue Code § 1.274-2(b)(1)(i), “Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.”
Barring further action by Congress, many of the TCJA rules are scheduled to expire after 2025 and some may revert to tax rules that were effective in 2017.
For clarification or more information, consult a certified tax advisor.
Author, Lindsay Reynolds
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.