You might need to rethink your plans if you’re used to taking your clients and business associates out for business meals because they’re a tax write-off. The meals and entertainment deduction for 2023 is quite different from 2022.
Most business meals are only 50% deductible in 2023, compared to being 100% deductible in 2022. The business meals deduction in 2023 allows certain meals and entertainment expenses to be 100% deductible, but they have to meet a few conditions.
So, if you’re a self-employed individual looking for updates on deductible business expenses for your taxes, you’re in the right place.
The IRS allows 1099 workers to deduct their business meals as a tax write offs. The meal needs to be strictly for business purposes otherwise, it is not tax-deductible.
Suppose you took your client out for lunch instead of meeting at your office to discuss your next project. That meal is a business deduction and can be written off. The business meals deduction for 2023 allows taxpayers to write off 50% of meal costs. This is quite a change from the meals and entertainment deduction in 2022, which allowed 100% of meal costs to be written off.
If you’re looking for other business deductions to write off, use a 1099 tax calculator. So, why were meals 100% deductible in 2022? The Consolidated Appropriations Act (CAA) of 2021 allowed taxpayers to deduct 100% of business meals to help restaurants cope with the effects of the pandemic.
That being said, using meal costs as business expense deductions is still a good idea for the 2023 tax year. These business deductions can be valuable in reducing your taxable income when you file your Schedule C.
And the lower your income, the lower your tax liability. This is especially useful in determining whether you have to make estimated quarterly tax payments. The IRS expects taxpayers owing over $1,000 in estimated tax to make this payment four times a year. A quarterly tax estimator is a good way to check your tax amount and avoid being hit with penalty fees.
Let’s now discuss what kind of business meals are actually tax-deductible. Remember that the meals and entertainment deduction in 2022 was only available to 1099 workers and not W-2 employees. The same is the case for the meals and entertainment deduction in 2023.
You can only deduct meals for work reasons and with individuals that you are in business with. So family lunches or a dinner with your partner do not qualify as business expense deductions– unless you work with them.
If you’re having trouble deciding what meals and expenses qualify as tax deductions, you can use Ask FlyFin. Simply ask the A.I. tax assistant any question and get an answer in seconds. You can even ask one of FlyFin’s expert team of CPAs to verify your answer on the app.
You can also deduct 50% of alcohol expenses, within reason. If you end up buying a few drinks during a business dinner, you can go right ahead and write off 50% of that cost. But if you splash out on a $500 bottle of wine because you’re feeling good about closing a business deal, that will raise some red flags with the IRS.
So, were meals 100% deductible in 2022? Yes, but now most business meals are only 50% tax-deductible. Alcohol is a deductible business expense for your taxes, but again, you can only write off 50% of reasonable expenses.
Let’s move on to entertainment expenses. Before 2017, taxpayers could actually deduct 50% of any entertainment expenses incurred for business purposes. The introduction of the Tax Cuts and Jobs Act changed that. For the 2023 tax year, the IRS no longer allows entertainment costs to be taken as business expense deductions.
Like certain business meals, a few entertainment costs are still 100% deductible. If the expenses are incurred by a business to serve their customers better, it can be fully written off as a tax deduction. It’s also worth mentioning that both business meals and entertainment expenses can be write-offs for LLCs, sole proprietorships and S Corps.
Keeping track of these business expenses means saving receipts. While you don't need to hang on to every receipt if you’ve got bank statements to back it up, it’s worth having proof of meals over $75.
And regardless of the cost, you should also be recording when and where you had the meal, who you had it with, the purpose of the meeting and the total cost of the meal, including the tip and tax.
This way, you’ll have sufficient evidence to claim the meals and entertainment deduction in 2023 when you file your taxes. You can also always reach out to a tax professional for guidance if you need it.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.