Tax Tip #248

Karina owns a business and hosts a barbecue for her team in her backyard, serving food and beverages, including alcohol. When the business tax return is filed, what portion of the expenses is deductible? 

A. Nothing, since it was on personal premises

B. Everything is deductible but limited to 50%

C. Everything is 100% deductible

D. Food & non-alcoholic beverages are 50% deductible & no deduction for the alcohol

E. Food & non-alcoholic beverages are 100% deductible & no deduction for the alcohol

The correct answer is C — the entire cost of the food and all beverages are 100% deductible.

Under certain conditions, business-related meal and entertainment expenses may be fully deductible. In this scenario, because the barbecue was held for the benefit of the employees (not Karina personally) and did not include highly compensated employees, the expenses are fully deductible.

To substantiate the deduction, Karina should maintain records detailing the business purpose of the event, a list of attendees and receipts for the food and beverages.