As we enter tax season 2025, there is a lot of uncertainty around the economy and its direction. With that in mind, business owners could benefit from optimizing their tax-planning strategies and improving their financial security.
Tax planning is a great way to optimize your take-home pay if you run your own business. Essentially, the fewer taxes you pay, the higher your net income. The entertainment and meals tax deduction has been a great way for successful business owners or self-employed people to maximize their tax deductions yearly. Unfortunately, the original Trump tax plan cut the value of the meals and entertainment tax deduction by 50% in 2024.
Keep reading as we share what you need to know about the meals and entertainment deduction for 2024. This tax deduction guide can help you take advantage of these valuable money-saving tax deductions. I know quite a few entrepreneurs who conduct most of their business meetings out and about over meals at restaurants. These folks can rack up some substantial tax savings.
How You Can Deduct Meals And Entertainment Expenses As A Business Owner
The value of meal and entertainment tax deductions has changed over the past few years. With the ratification of the Tax Cuts and Jobs Act, aka the Trump Tax Plan, entertainment expenses can no longer be deducted. Similarly, ticket costs are no longer deductible if you take clients to a sporting event, concert or Broadway show.
However, other ways exist to deduct some expenses that qualify for a meal and entertainment tax deduction.
2024 Meals And Entertainment Allowable Tax Deductions
The meals and entertainment tax deduction rules are the same for tax years 2023 and 2024. So, if you’ve already learned about these deductions, the rules have not changed for your 2024 taxes.
Knowing what qualifies for the meals and entertainment tax deduction in 2024 will be helpful as you begin prepping to file your taxes. Here are some potential dining expenses that may be half-to-fully deductible when incurred by your business.
· Food for company holiday parties (100%)
· Food and beverages given to the public (100%)
· Dinner for employees working late at the office (100%)
· Business meals with clients (50%)
· Food items for the office (50%)
· Meals while traveling for work (50%)
· Meals at a conference (50%)
Your Guide To The Meal Tax Deduction For 2024
For 2023 and 2024, most business meals are only 50% deductible, according to the current IRS rules. Let’s say you take your favorite client to a beautiful dinner (to discuss business); regardless of cost, you can only deduct half the expense of the meal. On the other hand, if you go out for a meal with a client with no business purpose, the meal’s cost is tax deductible.
The change to the meal deduction could cause some confusion since meals were 100% deductible in 2023 and 2023. This was a temporary change under former President Joe Biden to help boost spending at restaurants during the Covid-19 pandemic.
How You Can Document Your Tax-Deductible Meal Expenses
If you want to deduct a business meal that costs more than $75, you must keep receipts or documentation of the dining expense. For meals below $75, the IRS does not require you to keep receipts to document the expense. Either way, you will still want to keep a record of your deductible meal, including the following information: date of the meal, total including tax and tip, name of the restaurant, details of the business meal (who attended and how it related to your business).
Your Guide To The Entertainment Tax Deduction 2024
Most entertainment expenses are no longer deductible, which annoys many business owners to no end.
Here are some of the most common exceptions to entertainment expenses that may still be tax deductible in 2024: expenses for events like the company holiday party, rewards trips or costs tied to business meetings (think chamber meetings, professional associations, or even a conference). Also, if you sell entertainment to your customers, there are exceptions to the entertainment deductions.
For example, a bar owner paying a band to perform for customers would likely be a deductible business expense. Buying tickets to see “Hamilton” on Broadway (with or without clients) would not be deductible. If you took clients to dinner first and discussed business, the meal would likely be deductible.
How To Make Up For Reduced Meal Deductions In 2024
Make sure you have the best retirement plan for your small business. Look to increase your contributions to your 401(k) plan. You can contribute up to $69,000 to your Solo 401(k) in 2024, more if you are age 50 or older. Consider setting up a Cash Balance Pension Plan if you need even more valuable tax deductions. The pension plan could allow you to sock away several hundred thousand dollars annually (depending on your age and income).
Tax planning is not exciting, but the tax savings can be in the millions of dollars over the lifetime of a business. With that much money on the line, isn’t it worth a bit of your time to ensure you are maximizing your available tax deductions?
Entertainment expenses this year, 2025, are still not tax deductible. The rules surrounding meal deductions remain the same as in 2024. However, with the new president, I would not be surprised if we see some tax law changes for 2025. Stay tuned for the changes Congress will make to the tax rules in 2025 and what they will mean for your bottom line.