Suppose you take your best client to dinner to celebrate your business relationship. Can you deduct any of the cost if you own a business, are self-employed, or run a side business? According to the new rules, here are some tips on how to deduct business meals correctly:

What constitutes a business meal

Previously, small businesses could deduct 50% of business meals and entertainment costs with clients. The meal deduction remains, but entertainment costs are no longer deductible.

The problem is that separating a business meal from client entertainment is not always clear-cut. If you treat your best clients every year to dinner and tickets to a sporting event, the tickets are not deductible, but the meal may be.

If you use the meal to discuss business, you should be safe to take the deduction. But the deduction is now harder to justify if it’s just a social event without business discussion. That means it’s up to you to make clear it’s a business meal.

How to document business meals

The easiest way to do this is to keep a business log for your meal expenses, including a field labeled business purpose. In addition to recording the meal’s time, date, place, and cost, list each attendee, company affiliation, and professional title. Then, briefly describe the specific business purpose: Discussed new products and competitive price structure.

For the strongest defense of your deduction, try to define the purpose of the meeting as something that could impact your bottom line. Simply chatting about trends in your industry may not pass muster if you are audited under the new rules.

Deduct business meals correctly

Deductions for extravagant expenses on meals and entertainment will always be hard to defend. So, if you are having a serious business discussion over dinner, make sure it’s not at a luxury restaurant that will give you a huge dinner bill.

Remember, business meals are still deductible but must have proper documentation. If done correctly, this deduction should withstand any audit risk. Contact our RRBB advisors for more information or if you have questions.