Deducting Meal and Entertainment Expenses
The 50% Meal and Entertainment Deduction Limitation
Only 50% of the following expenses are deductible (applies to self-employed persons and employees):
- Meals and beverages
- Face value of tickets to an event (even if you pay more).
- Taxes and tips related to business meals or entertainment
- Cover charges (e.g. admission to a night club)
- Rent paid for a room in which you hold a dinner or cocktail party
- Amounts paid for parking at a sports arena
See exceptions to the 50% limitation rule below.
Transportation costs to and from the restaurant and/or entertainment facility are fully deductible (not subject to the 50% limitation).
If meal and entertainment expenses fit any of the following exceptions, they are fully deductible:
- Recreational and social activities for employees, which includes such activities as:
- the company Christmas party and company picnic
- occasional meals, such as a pizza party,
- the Thanksgiving turkey or ham you give to employees
- Promotional activities:
- For example, you provide food and beverages to members of the general public who agree to sit through your sales presentation.
- Tax-free de minimis fringe benefit:
- This applies to expenses of providing an employee cafeteria on the employer's premises and more than 50% of the employees to whom meals are provided are furnished the meals for the employer's convenience.
- Meals and entertainment you pay for employees:
- You may deduct 100% of the cost of meals and entertainment if the cost is included in the employees compensation subject to income tax withholding.
- If you provide meals to employees at your own restaurant do not include the cost in your employee's compensation. Instead, include the cost in your cost of goods sold.
Where to Deduct Meal and Entertainment Expenses
Deduct 50% of the cost of meals and entertainment on Schedule C, Line 24 (b).
An employee reports unreimbursed business expenses on Form 2106 or 2106-EZ. The deduction is carried to Schedule A as a miscellaneous itemized deduction where it is subject to the 2% of adjusted gross income floor.
Self-employed individuals are not subject to the 2% floor because they claim the deduction on Schedule C.