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The Three Types of Meal and Entertainment Deductions

Do you know when to deduct meal and entertainment expenses and how much the deduction should be?

Generally speaking, there are three types of meal and entertainment expense deductions: 100% deductible expenses, 50% deductible expenses and non-deductible expenses.

First and foremost, the expense must be directly related to and benefit the business. You must be able to prove:

  • How much was spent
  • The time, date and location of the expenditure
  • The purpose of the meeting
  • The participants’ identities

50 Percent Deductions – These are expenses for meetings or discussions that will benefit the business. For example:

  • Tickets to a sporting event associated with a business discussion
  • Food eaten with a customer, client or employee associated with a business discussion
  • Taxes and tips related to a business meal or entertainment activity
  • Facility rental for a dinner or cocktail party (if the event met the business relation test)

100 Percent Deductions – These expenses usually benefit the employees of a company. For example:

  • Free coffee, bottled water, donuts, etc. provided to employees at the place of business.
  • Meals provided at the place of business to more than half of the employees as an incentive to work after-hours, on weekends, or on holidays.
  • Free food or beverages offered to the public for promotional purposes.
  • Meal and entertainment expenses for a company picnic or holiday party.

Nondeductible– These expenses are not business related and therefore non-deductible. For example:

  • Meals without a business purpose (even if it’s shared with a customer, client or employee)
  • Ticket price for sporting event that you do not attend
  • Club dues; for example, country clubs, golf and athletic clubs
  • Lavish or extravagant entertainment expenses (basically unreasonable expenses)

Keep in mind that taxes are complicated and there are a number of special rules in this area. If you are ever in doubt, consult a qualified tax professional for advice about deductible expenses, credits, etc.


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