As baseball season approached, I thought it would be a good idea to review once again physician and medical practice write-offs for meal and entertainment expenses. However we know what has happened to baseball season. Let that not stop us – again here is a brief overview.
As you know, entertainment expenses are not deductible. Tax reform axed this break, starting with 2018 returns. So, no writing off show tickets, hunting or fishing trips, golf greens fees, sporting events or similar things. Food and drinks usually aren’t entertainment, the IRS says in newly issued proposed regulations that closely mimic guidance in a 2018 IRS notice.
Client, patient, and employee business meals are still generally 50% deductible, but certain rules must be met. The expense must be ordinary and necessary, incurred in the taxpayer’s trade or business, and can’t be lavish or extravagant. The taxpayer or an employee must be present, with the meal and drinks furnished to current or potential customers, employees, clients, agents or professional advisers. If a taxpayer meets a client for dinner and talks business, half the cost is deductible. Ditto if a manager takes an employee to lunch to discuss the employee’s annual review.
Even meals at an entertainment venue are 50% deductible in some cases. The food and beverages must be purchased separately from the entertainment’s cost or stated separately on a receipt or invoice. For example, half the cost of hots dogs and beer at a baseball game is deductible if bought separately from the tickets. Contrast this with a situation when one invites a business associate to a game in a private suite with access to food and beverages. If the cost of the tickets includes the food or beverages on the invoice, then nothing is deductible. If, however, the invoice or receipt separately states the cost of the refreshments, then the tickets aren’t deductible, but 50% of the food and beverage cost is.
Employee meals on business travel remain 50% deductible by the employer and are subject to the substantiation requirements. There generally is no deduction for the cost of meals of spouses or children who may be traveling with the employee.
Holiday parties are fully deductible. The same goes for annual picnics, summer outings and similar activities that are primarily for the benefit of employees. Ditto for the cost of food made available to the public, even if employees also indulge. Think refreshments provided by real estate agents at an open house or complimentary donuts and coffee in an auto service center’s waiting area.
But the cost of free snacks in an employee break room are 50% deductible. Limits are placed on meals at an employer-operated, on-premise eating facility, such as a cafeteria that provides free food to employees. If the meals are excluded from the employee’s income as meals provided for the convenience of the employer, then the write-off is subject to a 50% bite. After 2025, the cost is disallowed in full. If the food and beverages don’t meet the definition of a de minims fringe benefit and are instead employee compensation, the employer can fully deduct the cost.
We might not be attending a baseball game anytime soon, but reach out of you have questions about physician and medical practice write-offs for meals and entertainment.