Entertainment Expense Deduction Limited
As a general rule, your company can deduct 50 percent of the cost of meals as a business expense if specific conditions are met. However, Congress has completely eliminated the deduction for most entertainment expenses. Even if a meal or entertainment expense qualifies as a business expense, none of the cost is deductible unless strict and detailed substantiation and recordkeeping requirements are met.
Under transitional guidance provided by the IRS, 50 percent of food and beverage expenses associated with operating a trade or business continue to be deductible after 2017 if the following requirements are met:
- the expense must be ordinary and necessary and paid in carrying on a trade or business;
- the expense may not be lavish or extravagant;
- the taxpayer or an employee must be present when the food or beverages are furnished;
- food and beverages must be provided to a current or potential business customer, client, consultant, or similar business contact; and
- if the food is provided during or at an entertainment activity the separate invoice requirement applies.