Do you struggle determining what meals and entertainment expenses are subject to the 50% limitation? You might not be taking full advantage of the deductions you are entitled to. This article will explain the general rules relating to meals and entertainment, and the exceptions to the 50% limitation.
Entertainment expenses that are incurred while entertaining a client, customer or employee are deductible if they are ordinary and necessary. An expense is ordinary if it is common and accepted in your trade or business. An expense is necessary if it is helpful and appropriate for your business.
In addition to being ordinary and necessary, the expenses must meet one of the following tests:
When determining if you meet the directly-related test you should ask yourself the following questions:
When determining if you meet the associated test, you must ask yourself the following questions:
Generally, business-related meals and entertainment are subject to a 50% limitation on deductibility.
The 50% limit applies to meals and entertainment incurred while traveling away from home, entertaining customers or attending a business meeting.
The following describes meals and entertainment expenses that are 100% deductible:
It is critical that proper records are maintained to substantiate all meals and entertainment deductions. Proper documentation includes a record of the time and place, business purpose and the relationship to the party being entertained.
If you have any questions, please contact your Withum professional, a member of Withum’s National Tax Services Group or email us at firstname.lastname@example.org.
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.