How to Take a Tax Deduction for Team-Building Activities

As part of the Consolidated Appropriations Act (2021), the deductibility of business meals has changed. Food and beverages were 100% deductible if purchased from a restaurant in 2021 and 2022. This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.

However, for purchases made in 2023 onward, the rules revert back to how they were defined in the Tax Cuts and Jobs Act. This means purchases for business related meals are back to only 50% deductible.

Entertainment expenses, like a sporting event or tickets to a show, are still non-deductible. However, team-building activities for employees are deductible.

KNOW WHAT YOU CAN AND CANNOT TAKE A DEDUCTION FOR

Most of the rules are pretty cut and dry. However, there are a few common scenarios that require clarification:

Purchasing tickets to take a business client to a sporting event or other entertainment type events are not deductible. Also gone are charitable deductions for contributions to the right to purchase tickets to a college’s athletic events. But you can deduct the meals consumed at these events, if you separate the receipts.

However, team-building outings, including the purchase of tickets for your staff is allowed and 100% deductible. The tax code states that “expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees” qualify for the 100 percent deduction.

Dinner provided for employees working late is 50% deductible. De minimis fringe benefits like in-office coffee and snacks do not fall into the category of meals, however, they are also 50% deductible.

Example Situations	100%	50%	0%
​Restaurant meals with partners, clients and prospects		​X
​Entertainment such as baseball and basketball games with clients and prospects			​X
​Employee meals for convenience of employer, served in-house cafeteria		​X
​Employee meals for required business meeting, purchased from a restaurant		​X
​Meal served at a business meeting held in a hotel meeting room		X​
​Meal consumed in a restaurant while staying out of town for business		X​
​Year-end party for employees and spouses	​X
​Golf outing for employees and spouses	​X
​Year-end party for customers classified as entertainment			​X
​Meals made on premises for the general public at a marketing presentation		X​
​Team-building recreational event for all employees	X​
​Golf, theatre, or hockey game with your best customer			​X
​Meal with prospective customer at the country club following your non-deductible round of golf		X​