When it comes to tax planning for your business, understanding the ins and outs of deductions can significantly impact your bottom line. One popular deduction that many business owners have utilized in the past is the meals and entertainment tax deduction. However, recent changes in tax laws have altered the landscape for these deductions.
Under the Trump tax plan, the value of the meals and entertainment tax deduction was cut by 50% in 2023. This means that business owners and self-employed individuals can now only deduct 50% of their eligible expenses related to meals and entertainment.
While entertainment expenses are no longer deductible, there are still opportunities to maximize deductions for meals that serve a business purpose. For example, expenses such as food for company holiday parties, business meals with clients, and meals while traveling for work may still be partially deductible.
It's important to keep detailed records of your deductible meal expenses, especially for meals costing more than $75. Documentation should include the date of the meal, total cost, name of the restaurant, and details of the business purpose.
Despite the reduction in meal deductions, there are alternative strategies that business owners can explore to offset the impact. One option is to maximize contributions to retirement plans, such as a Solo 401(k) or Cash Balance Pension Plan. These plans offer valuable tax deductions and can help business owners save significantly on their tax bill.
While the changes to the meals and entertainment tax deduction may require some adjustment, staying informed about the current IRS rules and exploring other tax-saving strategies can help business owners navigate the evolving tax landscape effectively.
