Meals and entertainment expenses have long been a staple of business operations, from client meetings to team gatherings. And Congress has been playing playing around with the rules since 2017. However, the IRS does apply specific rules for when these expenses are deductible, that have not changed. As we head into 2025, here's a breakdown of how to handle various meals and entertainment scenarios to ensure compliance and maximize deductions.
1. Client Meals
Deductibility: 50% deductible if the meal is directly associated with the active conduct of business.
Requirements:
The client must be present.
The business discussion must occur before, during, or after the meal.
Keep detailed records, including receipts, attendees, and the business purpose.
2. Meeting Meals for the Whole Company
Deductibility: 100% deductible if the meal is provided for the benefit of all employees during a company meeting or similar event.
Examples:
Meals provided at annual meetings, training sessions, or company-wide announcements.
Meals made available in the office for convenience during long work hours.
3. Meals While Traveling
Deductibility: 50% deductible for meals incurred during overnight business travel.
Requirements:
The trip must be for a legitimate business purpose.
Keep receipts and document the location, date, and business purpose of the travel.
4. Entertainment (e.g. tickets) as a Client Gift
Deductibility: 100% deductible, subject to the $25 per person gift limit.
Key Point:
If you give entertainment tickets as a gift (e.g., sports or theater tickets) and you do not attend, the expense is treated as a business gift and subject to the $25 limitation.
5. Entertainment When You Attend with a Client
Deductibility: Not deductible as entertainment expenses (e.g., sports games, concerts) are generally non-deductible even if you attend with a client.
Exception:
If entertainment is part of a business package (e.g., conference fees include tickets), it may be partially deductible as part of the event cost.
6. Meals and Entertainment Connected to a Business Activity
Meals:
50% deductible if provided as part of an event that involves business discussions or activities.
100% deductible if meals are part of a promotional activity open to the public.
Entertainment:
Entertainment expenses remain non-deductible unless directly tied to a qualifying exception, such as employee recreation events (e.g., holiday parties).
7. Meals When Working from Home
Deductibility: Generally not deductible.
Exceptions:
If you are self-employed, meals may qualify for deduction during business travel or meetings with clients (i.e. not at your home).
For employees working remotely, meals are not deductible unless part of a broader employer-provided plan.
Best Practices for Recordkeeping
To claim these deductions and avoid IRS scrutiny:
Maintain detailed records of all meals and entertainment expenses.
Document the date, amount, location, attendees, and specific business purpose.
Keep receipts and annotate them with relevant details - I recommend writing notes directly on the detailed receipt, snapping a photo with your phone and then uploading that photo a mobile app you use for tracking expenses.
