Travel, Meals and Entertainment Tax Deductions
Updated 4/2/2021
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
On Dec. 27, 2020 former President Trump signed into law The Consolidated Appropriations Act, which was a combination of multiple Acts created due to the pandemic.
One of the provisions of this Act will allow a temporary 100% tax deduction on business meals in tax years 2021 and 2022 as long as the meals were from a restaurant.
The objective of the temporary deduction is to stimulate the restaurant industry, which was one of the hardest hit industries during the pandemic
(Please see chart at the end of this article for more guidance.)
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 100% Deductible |
| Meals provided for convenience of employer | 100% Deductible | 50% Deductible | NEW 100% Deductible |
| 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 100% Deductible |