January312023
Understanding the Changes in Tax Treatment of Meals and Entertainment post COVID-19
Industry Insights
By Jonathan San Solo and Michael Mishik
1.31.23 | Practice Made Perfect
As the world continues to move beyond the pandemic, we are beginning to see an increase in business travel and entertainment. As such, meals and entertainment expenses are expected to stabilize throughout 2023. Over the past few years, these expense line items have fluctuated drastically for a variety of reasons—including changes in firm spending habits during the pandemic, office shutdowns and reopenings, and the Consolidated Appropriations Act of 2021 (CAA), which allows for meals provided by a restaurant during 2021 and 2022 to be fully deductible to help businesses during the pandemic.
As of January 1, 2023, this temporary shift in the treatment of meals swings back to pre-COVID rules under the Tax Cuts and Jobs Act of 2017 (TCJA), which generally limits meals to 50% deductibility and prohibits entertainment expenses from being deducted.
The following chart outlines the treatment of various scenarios for meals and entertainment deductibility during 2021 and 2022, and then 2023, now that the pre-COVID rules are in effect again.
| Scenario | 2021 & 2022 Deductibility under the CAA | 2023 Deductibility |
|---|---|---|
| Items sold to consumers | 100% deductible | 100% deductible |
| Occasional Holiday Party/Picnic | 100% deductible if the event is mainly for non-highly compensated employees | 100% deductible if the event is mainly for non-highly compensated employees |
| Food offered to the public (seminar/event) | 100% deductible | 100% deductible |
| Department meetings/outings | 100% deductible if the event is mainly for non-highly compensated employees | 100% deductible if the event is mainly for non-highly compensated employees |
| Snacks and drinks at the office | 100% deductible | 100% deductible |
| Overtime Meals provided by a restaurant | 100% deductible | 50% deductible |
| Meals during travel | 100% deductible | 50% deductible |
| Meals with a client or prospect | 100% deductible | 50% deductible |
| Meals with a client or prospect during an entertainment event | 100% deductible if separately stated on the invoice, otherwise entertainment and non-deductible | 50% deductible if separately stated on the invoice, otherwise entertainment and non-deductible |
| Meals provided for employer convenience | 100% deductible after 2025 will be non-deductible | 50% deductible after 2025 will be non-deductible |
| Eating facility operated at business | 50% deductible after 2025 will be non-deductible | 50% deductible after 2025 will be non-deductible |
| Event Tickets (sports, theater, etc.) | Non-deductible, but if there is a portion separately invoiced for a meal, charitable donation, business gift, etc., that can be carved out and deducted (subject to other applicable limitations) | Non-deductible, but if there is a portion separately invoiced for a meal, charitable donation, business gift, etc., that can be carved out and deducted (subject to other applicable limitations) |
| Membership dues | Non-deductible if for a social club (e.g., country club), but if related to professional or trade association, chamber of commerce, this is generally deductible | Non-deductible if for a social club (e.g., country club), but if related to professional or trade association, chamber of commerce, this is generally deductible |
Firms that have any concerns or questions regarding meals and entertainment deductibility or any other business matter should reach out to Jonathan San Solo at 212.331.7617 and Michael Mishik at 516.464.3467 or your Berdon advisor.