2023 Tax Guide for Entertainment And Meal Deductions

Beginning January 1st, 2023, the meals & entertainment deductions will reverse back to the tax laws that were in effect under the Tax Cuts and Jobs Act (TCJA). These various deductions were temporarily changed for tax year 2021 and 2022 when the Consolidated Appropriations Act of 2021 was passed by Congress. Most of the meal and entertainment deductions for 2023 will be reduced from 100% deductibility to 50%.

The 2023 meals and entertainment deductions include:

• Client Business Meals: 50% deductible if ordinary and necessary in carrying on business, taxpayer is present, provided to current or potential client or consultant and not lavish or extravagant

• Entertainment Related Meals: 50% deductible if charges are stated separately from the cost of entertainment. Entertainment related items are non-deductible

• Meals Provided to Employees Occasionally and Overtime Employee Meals: 50% deductible

• Meals Provided for the Convenience of Employer: 50% deductible

• Meals During Business Travel: 50% deductible

Example 1:

A taxpayer who takes a client to a ballgame cannot deduct the cost of tickets to the ballgame, but can deduct the cost of hot dogs and beverages for the taxpayer and the client as long as those costs are separately stated (Notice 2018-76). Taxpayers will want to ensure that luxury suite and sky box expenses are invoiced to separately state food and beverage expenses in order to keep those separately stated expenses 50% deductible under the new tax law.

Example 2:

If you pay for your clients’ night out but you don’t actually go with them, it’s 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 50% the client's portion of the bill).

To see a summary of the proper treatment for many types of meals and entertainment expenses for 2023, Click here for our meals and entertainment expense by category.

Documenting Meal and Entertainment Expenses:

Any deduction for business meals under prior law and current law must be substantiated with proper documentation, i.e. receipts. Check out this related article on receipt management for QuickBooks Online.

Documentation is still required so that a taxpayer is able to prove:

• The amount of the expense

• The time, date and place of the expense

• The purpose of the business discussion

• The identification of the people who participated

It is important to note that expenses for meals provided at entertainment venues run the risk of getting swept up in the overall definition of entertainment, potentially leading to a denial of deductions for such “entertainment meal” expense. Entertainment venues include night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and hunting, fishing, vacation and similar trips. The new IRS guidance provides for a favorable outcome concerning entertainment meal expenses when they are separately stated.

And if you need more guidance with some the nuances of the meals and entertainment deduction for 2023, contact us today!