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Maximizing Tax Deductions with Business Meals and Entertainment
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Maximizing Tax Deductions with Business Meals and Entertainment
Food and entertainment are an important part of human existence, but they can also be a good way to lower your business tax burden. As a freelancer or self-employed person, deductions are always on your mind, and you might be thinking, can I deduct meals as a business expense?
All types of self-employed people are eligible for business meal deductions, but not all meals are tax-deductible. To qualify for tax deductions, you need to know what counts as a business meal write-off. Maybe you meet a client for dinner to discuss business or meet them in a coffee shop to sign work documents. You could meet a prospective client over sushi.
Key highlights:
- Businesses can deduct a variety of business lunches and meals for the 2023 tax filing season
- In 2023, you can only deduct 50% of the cost of all business meals
- The IRS temporarily allowed 100% business meal deductions in 2021 and 2022
Table of contents
Can I deduct business meals as a tax write-off?
We are social beings, and you can strengthen relationships by sharing meals. Discussing business over a meal is a great way to build business relationships. Doing business over a meal can also be more convenient and help you accomplish your business goals in a shorter time.
But the question remains, as a freelancer or someone self-employed, can I deduct meals as a business expense? The short answer is yes! But one important requirement is that a business associate has the meal with you. A business associate is someone who is involved with the business in some way. You can be a business associate for another company, or you may have business associates you conduct your business with. In any case, deductible meals also happen between business associates.
A freelancer, gig worker or self-employed person can write off meals and beverages locally or when traveling for business purposes. So, can you write off a business lunch on taxes? You sure can! And doing this will score tax savings! But trying to write off a fancy meal, such as a 10-course set menu, may raise some eyebrows with the IRS. You can deduct your meals even when you are meeting a potential client or even when you didn’t end up working with them.
Watch this video to see if you can deduct meals with your spouse: https://www.instagram.com/reel
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If your gig requires business meals, you can write them off as food and entertainment deductions. If you’re a food critic, blogger or brand ambassador, for example, you can claim business meals as deductions because the meals relate directly to your business. For the 2023 tax filing season, the IRS changed food and beverage deductions to be 50% tax-deductible. In 2021 and 2022, business meals and company parties would count towards a 100% deduction because of the COVID-19 pandemic.
According to the IRS, businesses must purchase food for immediate use. The IRS does not consider businesses that sell packaged food to be restaurants. So convenience stores, drug stores, liquor stores, vending machines and grocery stores do not fall under the restaurant category for 50% business meal deductions. However, you can still claim food from them as a deductible if you gave that packaged food to a client. Then it can be counted as a client gift. Just remember that there’s a limit of $25 in gifts per client.
If you are wondering, “Can I deduct business meals with friends?” watch this video:
https://www.instagram.com/reel
/CpNwGHZOGhy/?utm_source=ig_web_copy_link
Can you write off groceries on taxes?
Whether you can write off food on taxes should be clear now, but are groceries tax deductible? Can you deduct groceries? Generally, the IRS does not allow you to write off groceries and snacks since they are for personal needs. However, if you work in the food industry, and it’s necessary to buy groceries or ingredients as a part of your business, you can deduct groceries.
So, are groceries tax deductible? Yes, but there’s a catch. Groceries can only count as a write-off in certain cases. Food bloggers can claim groceries as business expenses if they need to eat different food items for their blogs. If you work as a cook, chef or baker and host a dinner party for your clients, you can deduct the cost of groceries and other food items since it’s directly related to your business.
When working as an Airbnb host, you may want to provide your guests with staples like milk, eggs, bread, etc. These can be considered business expenses and are deductible on Schedule C. If you own a daycare or a childcare center, you can deduct the cost of the food that the children in your care eat.
Sometimes you can write off groceries if you have medical reasons to support it. You would need to have documentation from a doctor or healthcare provider. For example, you may be able to deduct groceries for a particular weight-loss plan.
To deduct the groceries for this, those groceries would need to:
- Satisfy regular nutritional needs,
- Alleviate or treat an illness
- Be approved by a physician
Can I write off concert tickets and other entertainment expenses?
In previous years, you could deduct entertainment expenses for your business. After the 2018 Tax Cuts and Jobs Act, the IRS stopped all entertainment business tax write-offs. As a result, many itemized deductions including golf outings, sporting events, concerts, theaters and nightclubs are no longer tax-deductible.
Video: https://www.instagram.com/p/Cnr09vArdwQ/?utm_source=ig_web_copy_link
You can still deduct food or beverage purchases at an entertainment event in your 2022 tax return, but the sale must be separate and not on the same receipt as the event ticket. Hosting clients on trips like hunting, fishing or even vacations is non-deductible. Going out on a yacht or a sailboat won't count either.
Renting or using an entertainment facility can’t be deducted for business purposes. This includes swimming pools, basketball courts, race tracks and airplanes. It’s because the IRS doesn’t consider partying to be an ordinary and necessary business activity.
So what’s not eligible for deductions?
There are many ways you can deduct business-related expenses, including meals and entertainment. But in some instances, you cannot make a deduction. For example, if you pay for a client’s meal but aren’t present at the meal, this would not be eligible for the IRS food and drinks tax deductible requirement.
Or, if you invite your spouse or friends to a business meal, their portion of the bill would be non-deductible. It’s important to keep in mind that most entertainment events are not eligible for deductions. Also, any club fees, including sports clubs, golf clubs, country clubs, airline clubs and hotel clubs are not eligible. In addition, any transportation costs cannot count as a deduction.
Keeping track of expenses
There’s nothing more annoying than sorting through and storing receipts. But surprisingly, it’s not necessary to hold onto every single receipt. In fact, the IRS will accept bank and credit card statements. Still, it’s always good to have adequate evidence for your deductions if you get audited, like receipts, a digital calendar or an email thread. You can also provide an oral statement with the date, place, attendee names and bill amount. There are apps that can help keep track of your receipts and business expenses and find every possible deduction, so you don’t have to, saving you time and money.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator.
FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction.
Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes.
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