As a dental practice owner, managing finances wisely can greatly affect the profitability of your business. Among the many nuances of running a practice, understanding tax deductions—especially for business meals and entertainment expenses—can help minimize your tax burden and ensure compliance with IRS regulations. In this blog, we’ll break down what dental practices can and cannot write off in terms of business meals and entertainment, with specific examples aligned with the IRS tax code.
What Business Meals Can Dental Practices Write Off?
The IRS allows businesses to deduct a portion of the costs incurred for business-related meals. However, there are specific guidelines to ensure that these deductions are legitimate and compliant with current tax laws. Here’s a breakdown of what is allowed and what isn’t.
1. Meals with Clients
Meals with clients can be written off if they are directly related to your dental practice’s business operations. For instance, if you’re having lunch with a potential client or business partner to discuss your practice’s services, this would be a deductible expense. However, keep in mind that the meal must be either directly related to business or part of a business discussion.
Example of Deductible Client Meal:
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You take a potential client out to lunch to discuss dental care packages for their family. The total bill is $100, and as of 2024, 50% of the meal cost can be written off, meaning you could deduct $50.
Non-Deductible Example:
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You and your spouse take a friend (who has no business relationship with your practice) to dinner with no discussion of business matters. This would not qualify for a deduction.
2. Staff Meals
Meals provided to your staff can also be deductible, but the deduction varies based on the circumstances.
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100% Deductible Meals
- Office Parties & Social Gatherings – Meals provided for company-wide events (e.g., holiday parties) are fully deductible.
- Meals for the Convenience of the Employer (2021 and earlier) – If meals are provided on-site for the employer’s convenience, they were 100% deductible before 2022. However, starting in 2022, this deduction was reduced to 50%.
- Meals Provided by Restaurants (2021 & 2022 Only) – Due to COVID-19 relief measures, restaurant meals were 100% deductible for tax years 2021 and 2022, but this ended in 2023.
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50% Deductible Meals
- Regular Employee Meals at the Workplace – If meals are provided to employees for convenience (e.g., on-site cafeteria, meals for overtime work), they are now 50% deductible.
- Business-Related Meals – Meals with clients, prospects, or employees for business discussions are generally 50% deductible.
3. Conferences and Continuing Education
If you attend a dental conference or continuing education event and pay for meals, you can deduct 50% of those meal expenses. However, the meals must be during the time spent on conference-related activities.
Example:
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You attend a dental convention, and your meals during the event total $150. You can deduct $75, or 50% of the cost.
What Meals Are Not Deductible?
The IRS is strict about what constitutes a business-related meal. Some expenses that may seem legitimate are not deductible under current IRS guidelines.
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Lavish or Extravagant Meals: While you can treat clients and staff to a nice meal, the IRS disallows any deduction for lavish or extravagant meals. This means that if you take your team to a high-end restaurant and spend an unreasonable amount on food and drinks, you may not be able to deduct those expenses.
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Meals That Aren’t Business-Related: Any meal where no business is discussed or where it doesn’t serve the business in a direct manner is not deductible. For example, taking your spouse or friends out for a meal and claiming it as a business expense is not allowed.
- Entertainment-Related Meals: Meals that are part of entertainment expenses (e.g., meals at a sporting event) are not deductible unless separately itemized.
What Entertainment Expenses Can Dental Practices Write Off?
When it comes to entertainment expenses, the rules became stricter following the Tax Cuts and Jobs Act (TCJA) of 2017. While many entertainment deductions were eliminated, some business entertainment expenses remain deductible, provided they meet specific requirements.
1. Team Building Events and Outings
While pure entertainment, like tickets to sporting events, is no longer deductible, team-building events aimed at improving your team’s cohesion can still be eligible for deductions. If you organize a team-building activity such as a bowling night or a day at an escape room, you can deduct 100% of the cost, as long as it is meant to strengthen the team’s work dynamic and is part of your practice’s culture.
Example:
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You take your dental team to an escape room for a team-building event. The cost is $500, and you can fully deduct this expense as it’s aimed at improving employee relations and productivity.
2. Client Entertainment (No Deduction)
Under the current IRS regulations, client entertainment expenses are no longer deductible. This means that if you take a client to a baseball game or pay for a round of golf, you cannot deduct these expenses. Even if business is discussed during the event, the cost of entertainment remains non-deductible.
Example:
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You take a prospective client to a basketball game to discuss a potential business partnership. Although the meeting leads to new business, the $300 you spent on tickets is not deductible.
3. Holiday Parties or Annual Events
If you host an annual holiday party or a summer event for your staff, the costs related to these events can be fully deductible. The IRS allows businesses to deduct 100% of expenses for events that benefit the entire team, such as holiday parties or company picnics.
Example:
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You throw a holiday party for your entire staff at a local venue. The total cost for food, drinks, and entertainment comes to $2,000. You can deduct 100% of this expense since it’s a staff-wide event.
What Entertainment Expenses Are Not Deductible?
The IRS has made it clear that the following entertainment-related expenses cannot be deducted:
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Recreational activities with clients: If you take clients out to a sporting event, theater, concert, or similar activities, these expenses are not deductible. This rule remains even if you conduct business during the event.
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Club Membership Fees: Memberships to country clubs, sports clubs, or social clubs are no longer deductible under the updated IRS rules, even if they are used for business purposes.
Best Practices for Documenting Meals and Entertainment Expenses
To ensure that your business meals and entertainment expenses qualify for deductions and stand up to any scrutiny by the IRS, it’s important to keep detailed records. Make sure to:
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Keep receipts and note the business purpose on each receipt (e.g., “Lunch with Client – discussed treatment plan”).
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Document the names of individuals involved in the meal or entertainment event and their business relationship to your dental practice.
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Be mindful of what constitutes “reasonable” expenses to avoid disallowance of deductions for extravagant or lavish spending.
Conclusion
By understanding the IRS guidelines for deductible business meals and entertainment, dental practices can maximize their tax savings while staying compliant. Remember, client entertainment expenses are no longer deductible, but meals and team-building events with staff remain legitimate deductions. Properly documenting these expenses and adhering to IRS rules can significantly reduce your dental practice’s tax liability, allowing you to reinvest more into your practice’s growth.
For any questions regarding your specific tax situation, it’s always best to consult with a tax professional familiar with the dental industry. At Trinity, we have proven experience helping dental practices navigate their unique tax situations. Reach out to us today to set up a brief consultation.
