Meals and Entertainment are a bit of a tricky situation when it comes to doing taxes for a business. To put it simply, before last year, businesses were allowed to deduct up to 50% of expenses related to meals and entertainment that fell under certain criteria. It was a beneficial method of incentivizing businesses to interact more with their clients since they would get to write off the expense.
However, they have been rather strict in what they would and wouldn’t allow being written off as time has progressed. For example, after 2017 you could no longer take a deduction for sporting tickets or golfing to entertain your clients, but you could deduct half of the business meals for the client. In some cases, some expenses are 100% deductible, such as hosting a company-wide party or food and drink given out freely for a public event or if it was treated as taxable compensation for employees.
The general thing to take note of is that if it was work or business-related, you could usually write your meals or entertainment off as part of the deduction. However, you would need actual proof of it being for business purposes because social events not related to work, or the inclusion of friends and family not related to the working environment, can make them nondeductible. You would need to consult your tax professional to be certain.
With the Tax and Job Cuts Act, the laws have changed a bit more as of this year. Entertainment activities can no longer be deducted at all, but meals are now fully deductible for 100% of their costs going forward into 2021 and 2022. If the meals themselves are above $75 you will need a receipt to serve as proof, but documentation isn't mandated by the IRS for anything under.
As a bookkeeping firm, we would personally recommend that everyone keep an expense account in their chart of account and sub-accounts that define the kind of meals, such as Travel Meals or Office Snacks. But if that happens to be too strenuous or bloats your chart of accounts, at the very least you should take a note of the date, the amount, and the details of the occasion for when tax season comes around.
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