What changed in 2018
Before the Tax Cuts and Jobs Act of 2017, business entertainment was generally 50% deductible alongside business meals. For amounts paid after 2017, IRC § 274(a) disallows deductions for entertainment, amusement or recreation entirely. Business meals remain generally 50% deductible under § 274(n).
The temporary 100% deduction for restaurant meals applied only to 2021 and 2022. If your chart of accounts still has a 100% restaurant meal account from that period, it should be closed or remapped. Many of the coding errors we see today come from accounts that were set up for those two years and never retired.
The three buckets your chart of accounts needs
Most companies need at least three accounts to get this right. One for business meals at 50%, one for entertainment at 0%, and one for food and beverages purchased at an entertainment event that are separately stated, which can be 50% deductible under Treas. Reg. § 1.274-11.
The third account is the one most companies lack. Without it, food at a ballgame gets coded either as a meal, which ignores that the setting is entertainment, or as entertainment, which forfeits a deduction the company is entitled to.
- Business meals, travel and client: 50% deductible
- Entertainment, tickets, golf, shows: 0% deductible
- Food and beverage at an entertainment event, separately stated: 50% deductible
- Business gifts: deduction limited to $25 per recipient per year under § 274(b)(1)
Worked example: a client dinner and a ballgame
Leah Brennan, an account executive at Rasmussen Dental Supply, hosts two purchasing managers from a dental group. They have dinner at a steakhouse: food $318.40, wine $94.00, tax $36.12 and tip $76.00, for a total of $524.52. This is a business meal with a client, and the full $524.52 goes to the 50% account.
Afterward they attend a basketball game. Three tickets cost $642.00, which is entertainment and 0% deductible. At the arena Leah buys food and drinks for the group on a separate receipt for $87.35. Because it is purchased separately from the tickets and stated on its own receipt, it goes to the 50% event food account.
The evening cost $1,253.87. The deductible amount is $262.26 for dinner plus $43.68 for arena food, or $305.94. Had the arena food been bundled into a suite package price with no separate statement, the whole package would be 0%.
Edge cases that trip up coders
A few situations come up often enough to deserve their own policy guidance. Each one has a clear answer, but the answer depends on facts the receipt total does not show.
Write the answers into your coding guide with an example receipt for each. Coders who see a worked case apply the rule consistently; coders given only the statute tend to default to whichever account they used last time.
- Golf with a client: green fees are entertainment at 0%; lunch at the clubhouse on its own receipt can be 50%
- Meals while traveling alone on business: 50%
- A company-wide holiday party for all employees: generally fully deductible under a separate exception for employee recreation
- Tickets given as a gift instead of attended together: entertainment rules or the $25 gift limit, depending on the facts
- Conference registration that includes meals: follow how the invoice states the meal portion
Substantiation that holds up
Under Treas. Reg. § 1.274-5, a receipt is required for any expenditure of $75 or more, and every meal needs amount, time, place and business purpose. For meals with clients you also need the business relationship, which in practice means attendee names, their companies and what was discussed.
A card slip alone fails this test. It shows the total, but not who was there or what was ordered, so it cannot support the split between food at an event and the event itself.
Making the split at the line level
The meal versus entertainment decision is easy when one receipt equals one category. It gets hard when a hotel folio contains in-room dining, a bar tab and a ticket package charged to the room. Phyto Nex AI reads each line and proposes the account and deductible percentage for each one, citing the rule. Your finance team reviews the proposal before anything posts to the ledger.
Whatever tooling you use, check the year-end result against your tax provision. If the 0% entertainment account is nearly empty while your sales team hosted a dozen sporting events, the coding is drifting toward meals and the deduction is overstated.
Priya Venkataraman, Tax Content Lead
Priya is a CPA who spent her early career in a Big Four indirect tax practice. She writes Phyto Nex AI's guidance on accountable plans, meal and entertainment rules and substantiation.