Expensing Meals & Entertainment—What You Need To Know

As my team and I prepare for the year-end, we are going through the typical problem areas of the Profit and Loss. Since 2018 when President Trump signed into law many changes in the tax code, meals have been one that’s confusing. The rules of yesteryears are gone and it’s much more restrictive. Entertainment is non-existent with the exception of California that allows it on the state return. Let’s talk about what’s allowable and what’s not.

Entertainment has been cut. This includes but not limited to: Sporting event tickets (pro or college), and club memberships. It goes even further than just saying the ticket is NOT tax deductible the code now says that the meals related to the event are also not allowable. So, if you go to a sporting event and pay for a meal, none of that is deductible. I do encourage you to still record it as a cost of doing business. We still need to know the true cost of running the business.

For our California clients, entertainment should now be listed as a separate line item and it’s 50% deductible as it was before. Your tax preparer will ignore this item for your federal return.

Good news! There are still a few areas where we are allowed to deduct 100% of the cost.

1. Holiday Parties and picnics

2. Mileage to/from restaurant for a client business meal.

3. Meals that are included as taxable income to the employee (put on the W2).

4. Food offered to the public – Sales Presentations

Bad news! Many of the categories have now changed to 50%

1. Client business meals – not extravagant

2. Meals provided for the convenience of the employer to employees – expires 2025

3. Meals provided for overtime – Expires 2025

4. Water, coffee, snacks for the office – expires 2025

5. Meals in office during meetings

6. Travel meals

7. Meals at seminars

As you can see there are changes to the way we need to record things. Precious little will be at 100% and several of these 50% deductions will be non-deductible in 2025. The documentation required is the same as always. You need an itemized receipt not just a receipt with the total on it.

If audited, they want to know what you purchased at the restaurant. The receipt must have the date, time and place of the expense. You must document the purpose of the discussion and who you were with. Yes, my friends, your credit card statements are not enough to get you through an audit.

There you have it my friends. The Sooter Consulting team is already making changes to the Chart of Accounts and will be communicating to clients about how transactions need to be re-coded. Let me know if you have questions. We are here to help!