Meals and entertainment are integral parts of a business. If you want a good deal from a supplier, you would want to sweet-talk him over a meal—maybe a glass of wine or two. You would even find out the supplier’s favorite band and take him to a concert or even organize your own concert. The same goes for a potential client. You could talk business over coffee or get some sandwiches after looking at a business site—a house or unit if you are into real estate or the business establishment if you are offering products or services.
Meals and entertainment may also be offered to employees, especially when they are forced to work at odd hours like late at night or during holidays.
As a business owner or manager, it is important that one knows the rules on tax deductions for businesses. Some of these are meal and entertainment tax deductions.
Meals and entertainment tax deductions are very important especially if you are just starting your business and are still keeping it afloat. It is even more important that you are updated with the rules on tax deductions. You don’t want to abuse the law on tax deductions only to find out later that there were changes in the provisions. That is essentially the case with meal and entertainment tax deductions this year.
According to the new rule, which will take effect until 2025, entertainment is no longer tax deductible. The years before, a business owner could get a 50% deduction from entertainment bills. This is the effect of Tax Cuts and Jobs Act, which is aimed at reducing individual and corporate tax rates.
Considered entertainment are concerts, sports events, theaters, among others.
Business meals and travel meals still enjoy a 50% deduction rate. These are necessary expenses in conducting a business. Tax laws actually call this an “ordinary and necessary” expense. It makes sense because while eating is part of our system, spending for another person’s meal may be expensive, especially since it is expected that this will not be a one-time thing. The government recognizes the business person’s efforts to go such length just to keep the business moving and eventually succeed. So if you visit a supplier or you attend a conference that will help you with your business, then keep the receipts and label them appropriately. You have to indicate what you talked about with the person you were “doing business” with and keep the receipt to be considered in the deduction.
In-house cafeteria and worksite meals used to be fully tax deductible. According to the 2018 changes, you can only get a 50% deduction from it. Under the law, employees who work in a restaurant, catering service or vessel should have free meals. Their meals are no longer 100% deductible. The same goes for meals that some employers provide for people who are not working in the office. When you provide meals for these workers, then keep the receipt and you will get a 50% tax deduction. However, by 2025, this benefit will no longer exist.
And to end on a positive note: Recreational and social activities for employees, including holiday parties, are still 100% deductible even after 2025.