Your 2023 guide to entertainment and dining deductions
January 24, 2023
Tax planning is an important part of owning and running a successful business. Meals and entertainment tax deductions have been a valuable way for many small business owners to reduce their tax liability each year. Unfortunately, the value of the meal deduction will be halved for 2023 from 2022 deduction levels.
Read on as we share the ins and outs of the meals and entertainment deduction for 2023. This information can help you take advantage of these valuable tax deductions to save money. Some of you reading this have given up your office spaces and hold many of your meetings in restaurants.
How Business Owners Claim Meals and Entertainment
The value of tax deductions for meals and entertainment has changed in recent years. With the ratification of the Tax Cuts and Jobs Act (TCJA) of 2018, aka the Trump Tax Plan, you can no longer deduct entertainment expenses. The cost of the ticket is no longer deductible if you like to entertain yourself at sporting events or treat your clients to a show on Broadway.
There are other ways to deduct certain expenses that qualify for a meal and entertainment tax deduction.
Allowable deductions for meals and entertainment in 2023
It’s probably more useful to discuss what may still qualify for a tax deduction for the Meals and Entertainment Tax Deduction in 2023. Here are some potential tax deductions that may be between half and fully deductible.
· Business meals with clients (50%)
Food products for the office (50%)
Meals on a business trip (50%)
Meal at a conference (50%)
Food for company parties (100%)
Food and beverages offered to the public (100%)
Lunch for employees working late at the office (100%)
Your Guide to Meal Deductions for 2023
For 2023, most business meals are only 50% deductible, according to the IRS rule. Let’s say you take your favorite client to a wonderful dinner (to discuss business); you can deduct half the cost of the meal. On the other hand, if you go out for a meal with a non-professional client, the meal is not deductible.
To add to the confusion, meals were 100% deductible in 2021 and 2022. This was a temporary change to help increase restaurant expenses during the COVID pandemic.
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How to document your tax deductions for meals
Suppose you are trying to deduct a business meal that costs more than $75; you must keep receipts or documentation of meal expenses. For meals under $75, the IRS has no specific requirement to keep receipts to document expenses. Either way, you’ll still want to keep track of your deductible meal, including the following information: meal date, total including tax and tip, restaurant name, business meal details (which attended and how it related to your business).
Your guide to entertainment deductions
We mentioned earlier that most entertainment expenses are no longer deductible.
Here are some of the most common exceptions that may still be tax deductible in 2023: expenses for events such as company party or incentive trip, costs related to business meetings, think tank, professional associations or even a conference. Also, if you sell entertainment to your customers, there are exceptions to entertainment deductions. For example, if a bar owner pays a band to perform in front of patrons, that would likely be a deductible business expense.
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How to catch up on lost meal deductions in 2023
Make sure you have the right retirement plan for your small business. Look to increase your contributions to your 401(k) plan. If you need even more valuable tax deductions, consider setting up a cash balance retirement plan.