Travel, Meals and Entertainment Tax Deductions
On Jan. 11, 2021 the IRS issued a Bulletin No. 2021-2 containing final regulations to Meals and Entertainment Expenses effective Oct. 9, 2020:
The Tax Cuts and Jobs Act (TCJA) passed into law on Dec. 20, 2017 “eliminated the deduction for entertainment expenses.”
Prior to the TCJA there were exceptions that would allow a 50% deduction of certain entertainment expenses
As a general rule, the costs of commuting between your home and workplace are not deductible. However, if you can prove that your home office is your principal place of business, the cost of travelling from your home to your customers is deductible.
- If you travel away from your tax-home for more than one day, all business-related expenses are fully deductible: airfare, taxi, parking, lodging, entertainment and incidentals, EXCEPT meals, which are 50% deductible. You must be able to prove it was business-related and bookkeeping records must indicate the length of stay, city and state where you traveled, and reason for travel. It must be within reason. In Wisconsin, for example, the standard daily meal allowance is $55/day between October 2019 – September 2021. The meal allowance varies between cities in different states. (Your bookkeeper or accountant will need to know the detailed information.)
- For travel to conventions: If the convention is related to the active conduct of your business, meals are 100% deductible.
For tax purposes, if you operate as a Sole Proprietor or as a Single Member of an LLC, Travel & Entertainment expenses are recorded on IRS Form 1040 Schedule C of the IRS tax forms.
For exact per diem rates, please visit: The U.S. General Services Administration
|Type of Expense||Before TCJA||After TCJA||After Consolidated Appropriations Act (2021 – 2022 Only)|
|Entertainment (including meals as part of price of entertainment)||50% Deductible||Nondeductible||No Change (Nondeductible)|
|Business meals (incl. meals during entertainment event that are paid separately)||50% Deductible||50% Deductible||NEW |
|Meals provided for convenience of employer||100% Deductible||50% Deductible||NEW|
|Employer parties||100% Deductible||100% Deductible||No Change (100% Deductible)|
|Payment for Employee Meals while out of town for a business purpose||50% Deductible||50% Deductible||NEW|