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TAX TALK: Certain Meal and Entertainment Expenses are 100% Deductible

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 27, 2016 7:00:00 AM
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Many businesses host various entertainment activities for their employees including summer outings, holiday parties, and cruises. These activities provide a win-win situation: they are good for employee morale and you may be entitled to deduct the entire cost of the event.

Deduction limits
Generally, only 50% of the costs of meals and entertainment expenses are deductible. However, certain expenses are 100% deductible, including expenses:

  • For recreational or social activities for employees, such as summer picnics and holiday parties and cruises;
  • For food and beverages furnished at the workplace primarily for employees, including an employee cafeteria, bagel breakfasts, and free soda and water; and
  • That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The event cannot primarily benefit officers, other highly compensated employees, and business owners. Otherwise, expenses are deductible under the regular business entertainment rules subject to the 50% limitation.

Recordkeeping requirements
Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements that must be met, including certain records to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. However, to alleviate the administrative burden, you may be able to use IRS-permitted statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact me at HZemel@berdonllp.com or your Berdon advisor.

Hal Zemel, a Tax Principal at Berdon LLP, New York Accountants, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.

Topics: TAX TALK

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