@baldridgecpa

ISSUE 26

What You Can (and Can't) Deduct

The IRS pays extra attention to business meal and entertainment deductions, and for good reason. They’re some of the most misunderstood write-offs in the tax code.

I’ve seen business owners miss out on serious savings simply because they didn’t know the rules. I’ve also seen audits get ugly when people try to stretch them too far.

Here’s what actually works, so you don’t leave money behind or invite trouble.

How the 50 Percent Rule Works

Most legitimate business meals qualify for a 50 percent deduction. A lunch meeting with a client to talk shop or a team dinner during a work trip both qualify for exemption.

For 2021 and 2022 only, meals from restaurants were temporarily 100 percent deductible under COVID relief. That window has closed. Since 2023, the usual 50 percent limit has been back in effect.

What Qualifies as a Deductible Business Meal?

To qualify as a deductible business meal, it must meet all five of these criteria:

It’s ordinary and necessary for your business
It’s not lavish or extravagant
You or an employee is present
Business is discussed during the meal
It’s properly documented (details coming up)

The IRS doesn't define "lavish," but use common sense. A reasonable business dinner at a nice restaurant is fine. Renting out the entire restaurant for one client? That's pushing it.

Entertainment Is Out but Meals Can Still Count

Since 2018, entertainment expenses have been completely non-deductible. Golf outings, sporting events, and theater tickets are all 0 percent deductible.

But there is a workaround. Meals during entertainment activities can still qualify for a 50 percent deduction if:

The food and drinks are purchased separately from the entertainment, OR
The costs are listed separately on the bill

For example, if you take a client to a baseball game, the tickets are not deductible. The hot dogs and beer are 50 percent deductible if itemized on the receipt.

100% Deductible Scenarios (Yes, They Exist!)

Some business meals still qualify for a full 100 percent deduction

Snacks and drinks available to all employees at the office
Company-wide parties such as holiday events or summer picnics
Meals served at charitable events
Meals offered free to the public at events like customer appreciation days

Common Mistakes That Trigger Audits

Common audit triggers come from sloppy habits or outdated info. Claiming 100 percent of meals, writing off personal dinners, or failing to document the business purpose can all raise red flags. Round numbers look suspicious, and calling entertainment meals won’t fly.

What You Can Actually Deduct

Business meals are a legitimate expense when they support real relationships and real growth. This isn’t about pushing limits. It’s about knowing the rules and keeping clean records so you can claim what you’re owed without stress.

Not every lunch counts, and that’s fine. The point is to document the ones that do.