In general, you can deduct only 50% of your business-related meal and entertainment expenses. (If you are subject to the Department of Transportation's hours of service limits, you can deduct a higher percentage.
The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed.
Figure A summarizes the general rules explained in this section.
The 50% limit applies to business meals or entertainment expenses you have while:
Traveling away from home (whether eating alone or with others) on business,
Entertaining customers at your place of business, a restaurant, or other location, or
Attending a business convention or reception, business meeting, or business luncheon at a club.
Included expenses. Expenses subject to the 50% limit include:
Taxes and tips relating to a business meal or entertainment activity,
Cover charges for admission to a nightclub,
Rent paid for a room in which you hold a dinner or cocktail party, and
Amounts paid for parking at a sports arena.
However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit.
Application of 50% limit. The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions.
The 50% limit also applies to certain meal and entertainment expenses that are not business related. It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. It also applies to the cost of meals included in deductible educational expenses.
When to apply the 50% limit. You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication.
Example 1. You spend $100 for a business-related meal. If $40 of that amount is not allowable because it is lavish and extravagant, the remaining $60 is subject to the 50% limit. Your deduction cannot be more than $30 (50% × $60).
Example 2. You purchase two tickets to a concert and give them to a client. You purchased the tickets through a ticket agent. You paid $150 for the two tickets, which had a face value of $60 each ($120 total). Your deduction cannot be more than $60 (50% × $120).
Information courtesy of the Internal Revenue Service.
