A Tax Guide to Meals and Entertainment Deductions

Understanding meal deductions to help you save on taxes

Networking is integral to establishing new business opportunities and nurturing long-standing business relationships. Now more than ever, businesses need to capitalize on existing business relationships, and sometimes this may require business meetings that involve entertainment.

The IRS defines allowable expenses as both commonly accepted in your industry and helpful for your business. Examples of permissible meals and entertainment expenses include:

  • Entertaining a prospective client in pursuit of business
  • Meeting with a supplier to negotiate better business terms

How meal and entertainment tax deductions work

When it comes to saving money, businesses should take advantage of their tax benefits. This includes the enhanced business meal deductions, applicable in the years 2021 and 2022, as part of the COVID-19 relief strategy to aid restaurant businesses. This means that for 2021 and 2022 only, businesses can generally deduct the total cost of business-related food and beverages purchased from a restaurant. The limit is usually 50% of the cost of the meal.

To qualify for this enhanced deduction as part of your tax filing process, businesses must adhere to the following requirements:

  • The business owner or an employee of the business must be present when food or beverages are provided.
  • Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
  • Payment or billing for the food and beverages must’ve occurred after December 31, 2020, and before January 1, 2023.
  • The expense cannot be lavish or extravagant.

Grocery stores, convenience stores, and other businesses that mostly sell pre-packaged goods, not for immediate consumption do not qualify as part of the enhanced benefit.

Accounting software to aid your tax filing process

While the enhanced meals and entertainment tax benefit could help reduce your tax liability, businesses should review the special recordkeeping rules that apply to business meals. 

If accurate records of tax-deductible meals and entertainment expenses aren’t available when filing your taxes then you might not be able to claim it as a tax deduction from the IRS. Implementing accounting software to help you manage business expenses, categorize them correctly, and manage recordkeeping for tax-deductible expenses is an important step in filing your taxes accurately. Reliable accounting software, not only keeps the accounting side of your business running more smoothly, but also gives you a holistic view of the financial side of your business. Through customized data reports provided by your accounting software, you could also make business-saving decisions.

At Fusion, our CPAs can set up your accounting software and recordkeeping processes to help you optimize tax-deductible expenses. We help to ensure you are making timely and accurate submissions to the IRS to avoid tax penalties.

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.