Overview

Federal reporting requirements for business entertainment expenses focus on two questions: (1) is the expense ordinary and necessary for the business, and (2) can you substantiate it with contemporaneous records? The IRS evaluates both the substance of the activity and the paperwork. Since the Tax Cuts and Jobs Act (TCJA) of 2017, the rules narrowed which entertainment costs are deductible; meal treatment follows separate limits and exceptions (see IRS guidance listed below).

What counts as “entertainment” vs. a deductible business meal

  • Entertainment: sporting events, theater tickets, golf outings and similar activities meant primarily for amusement. In many cases these costs are nondeductible after TCJA. See IRS guidance on entertainment deductions for current detail (IRS – Deducting Business Expenses).
  • Business meals: food and beverages consumed for business purposes. Meals usually are subject to a 50% limit, but there are exceptions and temporary rules that have applied in recent years — review current IRS guidance before filing (IRS Pub. 463).

Deduction limits and recent policy changes

  • TCJA change: The TCJA significantly limited deductions for entertainment expenses starting in tax years after 2017. That change made many formerly deductible entertainment costs nondeductible.
  • Meals: Generally 50% deductible when business-related. Note: temporary legislative exceptions (for example, special restaurant meal rules that applied to certain years) have affected the percentage allowed in the past; always confirm current-year treatment with the IRS.

How the IRS expects you to document expenses

To substantiate business entertainment or meal deductions, the IRS requires contemporaneous documentation showing:

  1. Amount paid.
  2. Date and location of the expense.
  3. Business purpose (what business benefit was expected or achieved).
  4. Business relationship of each attendee (name and role or company).
  5. For travel-related meals, whether costs were reimbursed or paid by the employer.

Keep receipts, calendar entries, event programs, invitations, attendee lists, and short notes describing the business discussion. In my practice advising small businesses, clients that keep a simple digital log (photo of receipt + one- or two-line business purpose and attendees) reduce audit time dramatically.

How to report on tax returns

  • Sole proprietors report allowable amounts on Schedule C (Form 1040).
  • Partnerships, S corporations and corporations report deductible business expenses on their respective returns (Form 1065, Form 1120-S, or Form 1120).
  • Disallowed entertainment costs should be classified as nondeductible expenses; your CPA will show these as add-backs when calculating taxable income.

Audit red flags and common mistakes

  • Incomplete records: receipts without a business purpose or attendee names.
  • Blended personal/business events where the business purpose is unclear.
  • Claiming full entertainment deductions when the expense is primarily social.

Examples

  • Client dinner: A consulting firm logged the receipt, date, attendee names, and a short note that the meeting covered a prospective contract. The meal’s cost (subject to meal limits) was allowed.
  • Golf outing: A team outing billed as client entertainment lacked notes linking the event to a business discussion; the deduction was disallowed.

Practical tips to stay compliant

  • Use a consistent recordkeeping routine: digital photos of receipts plus a one-line business purpose and attendee list.
  • Separate personal and business charges at the point of sale.
  • Work with a tax professional to classify costs correctly on returns and to prepare for potential audits.

Further reading and authoritative sources

Related FinHelp articles

Professional disclaimer

This page is educational and does not replace personalized tax advice. Tax law and IRS guidance change—consult a CPA or tax attorney for recommendations tailored to your facts and the current tax year.