Tax planning is a major part of owning and running a successful business. The meals and entertainment tax deductions have been a valuable way for many small business owners to reduce their tax liabilities each year. Sadly, the value of the meal deduction will be cut in half for 2023 from the 2022 deduction levels.
Keep reading as we share the ins and outs of the meal and entertainment deduction for 2023. This information can help you take advantage of these valuable money-saving tax deductions. A few of you reading this have given up your office spaces and are conducting many of your meetings out and about at restaurants.
How Business Owners Deduct Meals and Entertainment
The value of the meals and entertainment tax deductions has changed over the past few years. With the ratification of the 2018 Tax Cuts and Jobs Act (TCJA), aka the Trump Tax Plan, you can no longer deduct entertainment expenses. The ticket cost is no longer deductible if you like to entertain at sporting events or treat your clients to a Broadway show.
There are other ways to deduct some expenses that qualify for a Meals and Entertainment Tax deduction.
2023 Meals and Entertainment Allowable Deductions
It is probably more helpful to discuss what can still get a tax deduction for the meals and entertainment tax deduction in 2023. Here are some potential tax deductions that may be between half to fully deductible.
· Business meals with clients (50%)
· Food items for the office (50%)
· Meals while traveling for work (50%)
· Meals at a conference (50%)
· Food for company holiday parties (100%)
· Food and beverages given to the public (100%)
· Dinner for employees working late at the office (100%)
Your Guide to Meal Deductions For 2023
For 2023, most business meals are just 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 client with no business purpose, 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 boost spending at restaurants during the COVID pandemic.
How to Document Your Meal Tax Deductions
Suppose you are looking to deduct a business meal that costs more than $75; you are required to keep receipts or documentation of the meal expense. For meals below $75, the IRS has no specific requirement to keep receipts to document the expense. Either way, you will still want to keep a record of your deductible meal, including the following information: date of the meal, total including tax and tip, name of the restaurant, details of the business meal (who attended and how it related to your business).
Your Guide to Entertainment Deductions
We previously mentioned 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 like the company holiday party or rewards trip, costs tied to business meetings, think chamber meetings, professional associations, or even a conference. Also, if you sell entertainment to your customers, there are exceptions to the entertainment deductions. For example, if a bar owner pays a band to perform for customers, this would likely be a deductible business expense.
How to Make Up for 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 Pension Plan.