How the 2022 Meals and Entertainment Deduction Can Benefit Your Business

Running a business is no easy feat, as entrepreneurs and business owners constantly face challenges, trying to make the right financial decisions to maximize revenue and minimize costs. One way to improve a company’s financial situation is by taking advantage of the tax deductions available for businesses. In particular, the meals and entertainment deduction has been a popular deduction for many businesses. In this article, we will investigate this deduction, and discuss how it can benefit your business in the year 2022.

What is the meals and entertainment deduction?

The meals and entertainment deduction is a tax deduction offered to businesses to allow them to deduct certain expenses associated with the business from their income. Businesses can use it to either reduce their taxable income or increase their tax deduction. Restaurants, clubs, and hotels can also benefit from this tax deduction by providing food and beverages to their clients or customers.

How does the 2022 meals and entertainment deduction differ from previous years?

Before we discuss how the 2022 meals and entertainment deduction can benefit your business, let’s first understand how it differs from previous years. The Tax Cuts and Jobs Act (TCJA) passed by Congress in 2017, suspended most entertainment expenses deductions. However, the IRS has allowed some industries to ignore the suspension in 2020 and 2021 due to the pandemic. In 2022, the suspension is back in full effect, so businesses will not be able to deduct entertainment expenses of their clients and customers. Nevertheless, meals can still be deducted in some situations.

How can the 2022 meals and entertainment deduction benefit your business?

Despite the limitation on entertainment expenses deductions, the meals and entertainment deduction can still benefit your business in the following ways:

1. Client meals

Businesses can still deduct 50% of their expenses for business meals that take place before, during, or after a business meeting with a client. For example, if you took a prospective client out for a meal costing $100, you could deduct 50% of this amount ($50).

2. Expenses for business meetings

Businesses can also deduct expenses incurred during business meetings, provided meals and beverages are not lavish or extravagant. For instance, the cost of a catered lunch or dinner during a business meeting or conference can be deducted.

3. Travel expenses

Businesses can also deduct expenses incurred while traveling for business, including meals and lodging expenses, provided these expenses are ordinary and necessary.

Examples of how the 2022 meals and entertainment deduction can positively impact your business

Here are some examples of how your business can benefit from the 2022 meals and entertainment deduction:

1. Doug’s Law Firm

Doug is a lawyer who spends most of his working day in the office and rarely dines out. However, Doug decides to take a potential client out for a meal to discuss a new case. The bill comes to $120, and Doug realizes he can save $60 using the 50% meals deduction. In this way, Doug saves money while successfully winning a new client.

2. Tim’s New Tech Startup

Tim recently started his own tech company and is always looking for ways to save money. When attending a trade show, he decides to take advantage of the travel expenses deduction to reduce the trip’s total cost. By deducting the prices of meals and lodging expenses, Tim can save some valuable cash that he can reinvest back into his business.

Conclusion

In conclusion, despite the suspension of the entertainment expenses deduction for 2022, businesses can still benefit from the meals and entertainment deduction. By taking advantage of this useful tax deduction and using it correctly, businesses can save money while growing their clientele and expanding their brand. Make sure to consult with a tax professional or accountant for specific advice tailored to your unique business situation when applying for the deduction. With a little bit of planning and research, your business can reap the rewards of the meals and entertainment deduction in 2022.