Written by : CPA. Sailesh Rapolu
(2 minutes read)
Any business entertainment expenditure is always non-deductible.Also includes amusement or recreation expenses also.
For example, ticketing to sporting events,concerts, golf outings.
You can continue to deduct 50% of the cost of business meals, if you (the tax payer) or employee of the tax payer is present. Make sure, the food or beverages aren’t lavish.When buying/incurring meal cost at an entertainment event, ensure you keep itemized receipts for food,so you can claim 50% of the meal cost.
There are exceptional cases, where entertainment expenses may be allowed.For example, expenses for recreational or social activities, primarily for the benefit of employees (not for highly compensated employees).
Deduction of meal expenses can be categorised into three buckets.
| 50% | 100% | 0% |
Examples of 50% deductibles
- Business lunch with customer
- Food and beverages for clients (also employee or owner to be present).
- Snacks in the pantry, for employees.
Examples of 100% deductibles
- Company wide holiday parties, summer picnics, team building events. Primarily for non – highly compensated staff.
- When meals are taxable and reported on employee W2.
- Meals that are made available to the general public.
Examples of 0% deductible (100% non deductible meals).
- Lavish Meals
- Meals provided to clients, where the employee or owner is not present.
- Meals provided at an entertainment event, with no separate invoice for the meals cost.
Tax planning.
- When buying/incurring meal cost at an entertainment event, ensure you keep itemized receipts for food,so you can claim 50% of the meal cost.
- Ensure the meals provided are not lavish.
- Ensure either the employer or the owner is present, when providing meals to clients.
- Others – create separate General ledger accounts for 50%,100% and 0% deductible expenses, for claiming the right amount of deduction.
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