Tracking what you eat and drink at restaurants may not sound appealing, but it does wonders for the self employed business owner's bottom line.
The 2018 Tax Cuts and Jobs Act eliminated entertainment deductions and only allows deductions for the cost of meals and beverages. You can no longer deduct concert tickets, stadium seats, golf rounds, and other activities used to entertain clients.
According to current IRS rules, most business meals are still 50% deductible. So, for example, if you take a prospective client out to lunch hoping to win their business, you can deduct 50% of the cost. If, however, you bring a friend with you, the costs of their meal are not deductible.
If the business meal costs over $75, you are required to keep receipts or other documentation for meal expenses. If the meal is under $75, the IRS does not require that you keep these documents. Regardless of the cost of the meal, you will need to keep a detailed record that includes the following information:
Total amount, including tax and tip
The name of the restaurant/place
Details of the occasion (who is in attendance, including titles and business names, and how the meal relates to business purposes)
The IRS defines “entertainment” as “any activity generally considered to provide entertainment, amusement, or recreation.” This includes things like bringing employees to a football game or other sporting event; offering a prospective client free theatre tickets; or taking an old client out on a sunset cruise.
As previously discussed, “in general, entertainment expenses are no longer deductible.” You cannot deduct the costs of renting out an “entertainment facility,” e.g., a bowling alley, yacht, fishing camp, swimming pool, car, plane, or hotel suite. You also cannot deduct the costs of membership dues, such as the fees for country club memberships.
However, there are still some ways to take advantage of the entertainment deduction. According to the IRS, the following entertainment related business expenses are still deductible:
Entertainment treated as compensation on your originally filed tax returns (and treated as wages to your employees)
Recreational expenses for employees such as a holiday party or a summer picnic
Expenses related to attending business meetings or conventions of certain exempt organizations such as business leagues, chambers of commerce, professional associations, etc.
Entertainment sold to customers. For example, if you run a nightclub, your expenses for the entertainment you furnish to your customers, such as a floor show, aren’t subject to the nondeductible rules
Please note, deductions will vary depending on your type of business.
All of the following are expenses you can subtract from your year-end tax bill, either by 50 or 100 percent:
Business meals with clients (50%)
Office snacks and other food items (50%)
The cost of meals while traveling for work (50%)
Meals at a conference that go above the ticket price (50%)
Lunch out with less than half of company employees (50%)
Food for company holiday parties (100%)
Food and beverages given out free to the public (100%)
Dinner for employees working late at the office (100%)
Try using the spreadsheet accounting method to track your meal and entertainment expenses. Contact us today for our customized spreadsheet and see how it can track your deductions and help you save money on your taxes.