The Tax Cuts and Jobs Act of 2017 eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation such as a nightclub, golf outing, or baseball game. However, taxpayers may still deduct business expenses related to food and beverages if certain requirements are met. Under the IRS regulations, food and beverage costs are deductible as a business expense if all of the following criteria are met:
- The expense is not lavish or extravagant under the circumstances.
- The taxpayer or an employee of the taxpayer is present when the items are consumed.
- The food or beverages are provided to a business associate – which is any person you could reasonably expect to engage or deal with in the active conduct of your business.
The meal may not be lavish or extravagant, but there is no dollar limit on how much you can spend. Business associates can include current or prospective customers, clients, suppliers, employees, agents, partners, or professional advisers. In addition, you can deduct the cost of food and beverage expenses, including any delivery fees, tips, and sales tax. Although the cost of the entertainment activity itself is not deductible, the food and beverages provided during an entertainment activity are deductible, but only if purchased separately from the entertainment or listed separately on the receipt. Normally, only 50% of meals are deductible on your tax return, but for tax years 2021 and 2022 – you may deduct 100% of the cost of business meals and beverages purchased from restaurants – including takeout. This is intended to help restaurants get back on their feet after suffering the effects of the covid-19 pandemic. However, business meals not purchased from restaurants are still subject to the 50% deduction limit.