The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated business entertainment as a deductible business expense and reduced most business meals to 50% deductible under certain circumstances. This was a big change for Pennsylvania businesses. Although the Consolidated Appropriations Act (CCA) of 2021 temporarily increased the business meal deduction to 100%, the 2023 tax year will return to the previous 50% level for most meals and snacks. PA accountants and CPAs should be knowledgeable about how they can help their business clients maximize what meal and entertainment deductions remain.
At least for now, gone are the days when your clients could give their customers tickets to a sports game or take them golfing and write off these expenses. However, your clients may still be able to deduct food and some other expenses, if they fulfill certain requirements.
- Business meal with taxpayer or employee present, for the purpose of conducting business, and the meal is not extravagant – 50% deductible (tax and tips included, travel to/from not included)
- Food and beverages purchased during an entertainment event, as long as the purchase occurs separately from the entertainment and/or is listed separately on the receipt – 50% deductible
- Office party or picnic food and beverages – 100% deductible
- Water, coffee, snacks for the office – 50% deductible, not deductible after 2025
- Meals when attending a seminar, conference, or other business event for business purposes – 50% deductible
- Food or beverages offered for free to the public – 100% deductible
- Meals or entertainment as part of employee compensation and included on W-2 – 100% deductible
Make sure your clients keep thorough records of their meals and entertainment expenses in order to avoid any problems in case of an audit. Records for business meals should include the date of the meal and name of the restaurant, who was present (both employees and business guests), total expense including meal, taxes, and tips, and how the meal related to the conducting of business.
For food and beverages provided to the office, the public, or office parties, your client should be able to provide receipts for the purchase of the food and beverage items and the dates and functions when the food and beverages were distributed.
While the meals and entertainment deduction has shrunk, it is still a valuable deduction for your business clients.