2023 Guide to Deducting Meals and Entertainment Expenses for Businesses and Professionals

Understanding Meal and Entertainment Deductions in 2023

For tax year 2023, the rules regarding the deductibility of business meals and entertainment expenses have shifted back to pre-pandemic standards in most cases. The temporary 100% deduction for certain restaurant meals, introduced to support the hospitality industry during COVID-19, expired at the end of 2022. This means business owners, self-employed professionals, and corporations must now navigate the standard deduction limits, exceptions, and strict documentation requirements imposed by the IRS. If you operate in California, these federal rules generally apply unless state-specific adjustments are made. This guide explains what you can and cannot deduct, how to maximize your eligible write-offs, and what steps to follow to maintain compliance.

Are Entertainment Expenses Deductible in 2023?

The answer for most businesses is clear: entertainment expenses are not deductible for federal tax purposes in 2023, with only narrow exceptions. This rule has been in effect since the Tax Cuts and Jobs Act (TCJA) of 2017. Entertainment expenses refer to costs incurred for activities considered amusement, recreation, or social events, such as sporting events, theater tickets, golf outings, or club memberships. Even if these expenditures have a business purpose, they are generally nondeductible [4] .

However, there are critical exceptions:

Company-wide social events : Expenses for annual company holiday parties, firm picnics, or similar gatherings for all employees remain 100% deductible [1] [2] .
Entertainment sold to customers : If your business sells entertainment as part of its service (such as a concert venue or restaurant with live music), the direct costs may be deductible, provided they are included in the taxable income of the recipient or are promotional in nature [1] .
Entertainment included in employee wages : If entertainment is treated as taxable compensation to an employee, it may be deductible by the employer [2] .
Professional meetings or conventions : For not-for-profits or professional associations, expenses for business meetings and conventions may include limited entertainment deductions [2] .

Most other entertainment costs, including tickets and facility rentals, are strictly nondeductible for tax purposes. If you believe an exception applies, keep detailed records and consult a qualified tax professional.

How Much of Meal and Entertainment Costs Are Tax Deductible?

For 2023, most business meal expenses are 50% deductible . This includes meals with clients, meals during business travel, and meals provided at conferences. To qualify, the meal must have a clear business purpose, and an employee or business associate must be present [1] . The following table summarizes the deduction rates for common scenarios:

Expense Type	Deductible % (2023)	Key Conditions
Meals with clients (with business purpose)	50%	Substantiated business discussion, taxpayer present
Meals for employees traveling for work	50%	Must be away from home on business
Office snacks and food	50%	For employee consumption during work hours
Company holiday party or social event (all employees invited)	100%	Event must be open to all employees
Entertainment event tickets (e.g., sports, concerts)	0%	Generally nondeductible
Food/beverages at entertainment events (itemized separately)	50%	Must be purchased separately from entertainment cost

Examples:

Client Lunch Meeting: You take a client to lunch to discuss business. Half the meal cost is deductible if you pay and keep the receipt with notes on the business purpose [5] .
Employee Holiday Party: You host a holiday event for all staff. All reasonable food and beverage costs are fully deductible [1] .
Sporting Event: You take a client to a baseball game. The ticket cost is nondeductible, but if you pay for hot dogs and drinks at the stadium and get a separate receipt, 50% of those costs may be deductible [5] .

California State Rules: Entertainment and Meal Deductions

California conforms closely to the federal IRS rules for business deductions regarding meals and entertainment. In most cases, the same types of expenses that are deductible (or nondeductible) on your federal return apply to your California return. However, always review the most recent California Franchise Tax Board guidance for any state-specific modifications, especially if your business has unique expenses or operates in multiple states. If in doubt, consult a California-licensed tax professional or CPA for the most current updates.

Step-by-Step Guide: How to Claim Meal and Entertainment Deductions

To claim eligible deductions and avoid IRS scrutiny, you must follow strict substantiation and documentation procedures:

Identify the Expense Category: Determine if the cost is a meal, entertainment, or another category. Entertainment is rarely deductible, but meals with a business purpose often are.
Save Detailed Receipts: Keep original receipts showing the date, amount, location, and parties present. For meals, note the business purpose and attendees on the receipt or in a log.
Separate Meal Costs at Entertainment Events: If you attend a sporting or entertainment event, request itemized bills to distinguish food and beverages from entertainment costs. Only the meal portion (and only 50% of it) is deductible.
Record Expenses Promptly: Use accounting software or spreadsheets to log meal and entertainment expenses, categorizing them correctly. This aids in accurate tax reporting and audit defense.
Review IRS and State Guidance Annually: Deduction rules may change. Check the IRS website for the latest Publication 463 or consult the California Franchise Tax Board for state-specific updates each tax year.

If you have complex or high-value deductions, consider working with a certified tax professional to ensure compliance and optimize your tax position.

Common Pitfalls and How to Avoid Them

Many businesses lose deductions or trigger audits due to insufficient documentation or misunderstanding the rules. Some common mistakes include:

Failing to separate meal costs from entertainment costs on receipts.
Claiming deductions for entertainment expenses that are explicitly nondeductible, such as golf outings, club dues, or tickets to events.
Not documenting the business purpose or who attended the meal or event.
Assuming all meal expenses are deductible at 100% when only very specific situations (such as company-wide parties) qualify.

To avoid these errors, establish clear internal policies, train your staff on what is and isn’t deductible, and use reliable accounting tools to track expenses in real time.

Real-World Scenarios and Alternatives

Example 1: Traveling Salesperson A salesperson travels for work, purchasing meals on the road. She keeps receipts, makes notes about her business meetings, and logs expenses daily. At tax time, she claims a 50% deduction for these meals, supported by her documentation. She also checks the General Services Administration (GSA) per diem rates for her travel locations, since per diem allowances are also deductible at 50% [2] .

Example 2: Tech Firm Holiday Party A software company hosts an annual holiday party for all employees. The costs for food, beverages, and venue are fully deductible, provided the event is open to all staff, not just select executives or owners [1] .

Alternative Approaches If your business relies heavily on client entertainment, consider shifting focus to business meals, training sessions, or educational seminars, which may still allow for partial deductions. For events, provide food and beverages as a separate, itemized charge to maximize deductions. Always keep up to date with IRS and state regulations, as these can change based on federal and state legislative updates.

How to Access Further Resources and Professional Help

For up-to-date, detailed guidance on business meal and entertainment deductions:

Visit the official IRS website and search for “Publication 463: Travel, Gift, and Car Expenses.” This publication outlines the current federal rules on expense deductions.
Consult the California Franchise Tax Board’s official website for any state-specific updates or forms related to business expense deductions.
If your situation is complicated or involves large sums, contact a qualified CPA or tax advisor familiar with both federal and California state tax codes.
Consider joining professional associations in your industry, which often provide updates, webinars, and reference materials on deductible expenses.

If you are unsure about any aspect of meal and entertainment deductions, document your expenses thoroughly and seek out the latest official guidance before filing your tax return.