What’s Still Deductible in 2023?

Going into the 2023 tax year, your company should be aware of new rules for deducting meals and entertainment expenses. We’ve summarized some info provided by the online bookkeeping company, Bench – which you also might find interesting as an accounting resource.?

Are food and business expenses 100% deductible?

The Consolidated Appropriations Act signed into law in December 2020 deemed business expenses for food and beverages 100% deductible if purchased from a restaurant in 2021 and 2022. This also applies to taxes filed in 2023. However, for purchases made in 2023 and onwards, the rules revert to how they were defined in the Tax Cuts and Jobs Acts. So, purchases at restaurants are no longer 100% deductible – sounds fun, right??

Navigating the new deductibility rules

In general, the concept is that if the expense is directly related to a specific business objective, you can deduct some or all of it. Unfortunately, the days of buying basketball tickets for clients are long gone. Even office snacks in the breakroom aren’t as abundant. Here’s a summary of deductibility for types of expenses:

• Entertaining clients (concert tickets, golf games, etc.): 0% deductible?
• A meal with a client where business issues are discussed – that isn’t lavish: 50% deductible
• Office snacks and meals (employee meals at a concert, employee meals while traveling, treating a few employees to a meal, food for a board meeting, dinner provided for employees working late): 50% deductible
• Company-wide party, say to celebrate a particular success: 100% deductible
• Food and drinks provided free of charge for the public, perhaps at an open house event at your office or plant: 100% deductible
• Meals and entertainment for employees – which are to be included in compensation: 100% deductible

There are three points worth emphasizing:

1. You need to help your bookkeeper/accountant help you keep it all straight. We recommend writing up a real expense report for each expense occasion. They key for customer meetings is to put on the report what was discussed in enough detail for a third party (ie. the IRS examiner) to know it was real. Be specific about this.
2. Be clear with your salespeople on what the rules are. For example, if they pay for your clients to go to a baseball game as a thank you, the entertainment part is non-deductible – whether or not your sales rep (or distributor) goes with them. Similarly, when you take a client to a restaurant, the cost of the guest is (probably) non-deductible.?
3. Pay attention to what is deemed compensation. This is a pain to track and it will cost companies more than it returns in tax revenue. But remember, meals and entertainment for employees may translate to taxable compensation for them.?

You may be wondering if anyone will really care about this. Will the IRS come knocking because you wrote off last Friday’s pizza lunch? It’s hard to say, but you should probably take the new $80B investment in IRS staffing seriously.

Moreover, your tax preparer has a fiduciary responsibility to see that your business is run properly. If they don’t ask how you manage all this, you may have the wrong tax preparer.?

We hope this is helpful.

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