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The last few years have afforded quite a few changes in how the IRS allows businesses to handle meal and entertainment costs in relation to their taxes. The 2018 Tax Cuts and Jobs Act (TCJA) eliminated deductions for most business-related entertainment expenses. Since the pandemic, the IRS has temporarily changed the tax-deductible amount allowed for some business meals to encourage increased sales at restaurants. With the easing of restrictions, businesses may be considering company picnics for employee appreciation or starting up business lunches with clients again.  

With all of these changes, putting a system in place to accurately track business food and entertainment expenses becomes essential. Best practices should include requesting detailed receipts and separately tracking which costs fall under the 50 percent deduction, 100 percent deduction, or not deductible categories. 

In addition to keeping excellent records, below are some additional things to keep in mind about the business meal and entertainment deduction rules, including a helpful chart highlighting the deduction category particular meal and entertainment expenses fall under. 

Meal and entertainment expense changes 

Under the TCJA, the IRS no longer allows businesses to deduct most entertainment expenses even if they were a cost of doing business. Food and beverage related to entertainment venues are only covered with detailed receipts separately stating the cost of the meal. 

Another change from the TCJA is that spouse or guest meals are not covered from travel unless the business employs the person. So, if your spouse accompanies you on a work trip, their meals are not deductible for the business. 

The Consolidated Appropriations Act of 2021 (CAA) has temporarily increased the deduction for business meals provided by restaurants to 100 percent for tax years 2021 and 2022. Not all meals are created equal, however. The 100 percent deduction is only available for meals provided by restaurants, which the IRS defines as: “A business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” Prepackaged food from a grocery, specialty, or convenience store is not eligible for the 100% deduction and would be limited to a 50% deduction. 

Also, note that the expenses must be considered ordinary (common and accepted for your business) or necessary (helpful and appropriate) and cannot be considered lavish or extravagant. An employee of the business or the taxpayer must be present during the meal, as well. 

A quick guide to business meal deductions 

Expense Category  Deductible Amount  Tax Code Reference 
Company social events and facilities for employees (e.g., holiday parties, team-building events)  100%  IRC Secs. 274(e)(4) and 274(n)(2)(A) 
Meals and entertainment included in employee or non-employee compensation  100%  IRC Secs. 274(e)(2) and (9) 
Reimbursed expenses under an accountable plan  100%  IRC Sec. 274(e)(3) 
Meals and entertainment made available to the public  100%  IRC Sec. 274(e)(7) 
Meals and entertainment sold to customers  100%  IRC Sec. 274(e)(8)  
Business travel meals  50% 

100% (1/1/2021 to 12/31/2022)* 

IRC Secs. 274(e)(3) and 274(e)(9) 

 

Client/customer business meals  50% 

100% (1/1/2021 to 12/31/2022)* 

Notice 2018-76 
Business meeting meals  50% 

100% (1/1/2021 to 12/31/2022)* 

IRC Secs 274(e)(5), 274(k)(1), and 274(e)(6) 
De minimis food and beverages provided in the workplace (e.g., bottled water, coffee, snacks)  50% 

 

IRC Sec 274(e)(1) 
Meals provided for the convenience of the employer   50% (through 12/31/2025) 

0% (on or after 1/1/2026) 

IRC Sec. 274(n) and 274(o) 
Employer-operated eating facilities  50% (through 12/31/2025) 

0% (on or after 1/1/2026) 

IRC Sec. 274(n) and 274(o) 
Meals/beverages associated with entertainment activities when not separated stated on the receipt  0%  Notice 2018-76 
Personal, lavish, or extravagant meals/beverages in relation to the activity  0%  IRC Secs. 274(k)(1) and 274(k)(2) 
Entertainment without exception  0%  IRC Secs. 274(a)(1) and 274(e) 

*Meals are only deductible in the 2021 and 2022 tax years if provided by a restaurant, as defined by the IRS in the above article.   

If you need help establishing a system to better track expenses or seek clarification on whether certain expenses are tax-deductible, give our team of CPAs a call today. 

 

Do you know what will happen to your business when you retire? By necessity, many busy small business owners spend all of their time thinking about the here and now, with little opportunity to focus on the future. But your company’s long-term survival -— and your own retirement security -— may depend on establishing a realistic and workable exit strategy.

Set a retirement date

Here is your first question: When do you plan to quit working? You may have a general idea of the age range when you would like to retire, but now is the time to set a precise date. That gives you a timeline to work with, which will make all your other planning easier.

Consider your options

The next essential question: Who do you expect will take over your business? Many companies make one of two choices: either someone buys the company from you or a family member or employee takes over as chief executive when you retire. It is important to consider which one is the most realistic option so that you can ensure a smooth transition down the road. Depending on your plans, there are different steps you should take now to ensure a smooth transition.

If you plan to sell

If you are going to sell your company to another business or individual, you will need an accurate idea of what it is worth. You should get a business appraisal when you are ready to sell; but it may be a good idea to get one now, even if there are many years until your planned retirement. An appraisal can help to spot your company’s strengths and weaknesses so you can analyze how those attributes impact its overall worth.

The information in the appraisal can be used to make changes that improve operations, sales and revenues and make you a more competitive player in the marketplace. Those steps will help increase your company’s value and its appeal to potential buyers at the time you decide to sell.

If you plan to promote from within

It is always a good idea to have a current idea of your company’s worth, but there are also other necessary factors to consider if you are hoping that someone within your company will one day take over the reins of leadership. The first question, of course, is who will that person be? Is there a very talented younger employee who you believe could one day take over? If so, begin grooming him or her now. This includes introducing the employee to key clients, increasing his or her level of responsibility and including the person in decision making whenever possible.

Even if you expect to sell your business, it is a good idea to have a promising future leader ready to take over the reins. In most cases, a potential buyer will be happy to see that there is someone in place to carry on.

There are many possible exit strategies available to small business owners. No matter which you choose, it will be a good idea to have an accurate sense of the company’s worth and to have a strong management team in place. Our firm’s professionals can help you develop a strategy to suit your business. Call us today.