Not all food and beverage expenses are created equal! Some are nondeductible, some are 50% deductible, and others are100% deductible.

So how do you know which of your food and beverage expenses are deductible? Let's break it down.

Why the confusion?

The deductible amount permitted for a business’s food and beverage expenses can be confusing. In general, 50% of the expenses are deductible unless an exception applies that permits 100% of the expenses to be deductible. However, if the food and beverage expense is inextricably bundled with an entertainment expense, it may be nondeductible.

Below are typical business food and beverage expenses and the amount the business can deduct. The examples (and the result) come directly from IRS Treasury Regulations. We'll use a business owner named Aaron and his company Northwinds in these scenarios.

Client lunch

Aaron takes a client out to lunch and spends $60, how much of the $60 is deductible?

50% of the food and beverage expenses are deductible, totaling $30. 

Employee lunch

Aaron takes one of his employees out to lunch and spends $70, how much of that is deductible?

50% of the food and beverage expenses are deductible, totaling $35.

Hotel business meeting

Aaron is holding a business meeting at a hotel, during which food and beverages are provided to attendees. Aaron spent $250 on facility charges and $600 on food and beverages. How much of the $850 is deductible?

The total deductible expenses are $250 for the facility charges and $300 for 50% of the food and beverage expenses, totaling $550.

Basic sporting event

Aaron has invited a representative from one of Northwinds' major vendors to a baseball game to discuss a proposed business deal. If Aaron spends $100 on tickets and $50 on food and beverages during the game, how much of the $150 is deductible?

The ticket cost is a nondeductible entertainment expense, and 50% of the food and beverage expense is deductible, totaling $25.

Fancy sporting event

Aaron invited a significant business customer to a basketball game to discuss a new business line he is offering. He purchased suite tickets to the game, where they can access food and beverages. The cost of the suite tickets was $500, including the food and beverages, and the amount allocated to the food and beverages was not separately stated.

How much of the $500 is deductible? The entire ticket cost is a nondeductible entertainment expense because there is no separate statement of the food and beverage costs.

Want to make sure you aren't missing any deductions? Click here to read part 2 in this series.

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