Non-Deductible Business ExpensesDefined along with Examples

Written By:
Lisa Borga

There are many different kinds of businesses, but all of them can deduct their expenses.

This helps businesses reduce their tax liability.

But, some expenses are not deductible, and these will not reduce a business’s tax liability.

Some business expenses can generally be deducted, such as insurance for your business, auto expenses related to doing business, and expenses for keeping your books.

However, there are a number of expenses that are not deductible, and it is important to know what these are, so we are going to discuss what non-deductible expenses are and list some of them in this article.

Understanding Non-Deductible Expenses

There are different kinds of business expenses.

Some of these may be deductible expenses, while others may be non-deductible or context-specific deductions.

This means in order to ensure you pay the correct amount for taxes, it is important to learn which expenses cannot be deducted as well as the rules for context-specific expenses.

For non-deductible expenses for a business, one type of expense that is never deductible is personal expenses.

Any personal meal, entertainment, or transportation expenses are not deductible.

This includes transportation to and from your job.

There are several other types of expenses that are non-deductible as well, which will be discussed in this article.

Types of Non-Deductible Business Expenses

Business Travel

Some business jobs require a significant amount of travel.

This really tends to depend on the industry the business is in.

Fortunately, most travel expenses for business are deductible.

Typical travel costs, such as fuel for your car, the hotel room you stay in, and your meals, are generally deductible.

Just remember that if you bring along a guest that does not work for the business, their expenses are not deductible.

This means that you or your guest will need to cover these expenses, and the expenses cannot be claimed as a business expense for your taxes.

Specific Types of Gifts

It is not unusual to give gifts to some business clients, potential clients, or even your business partners.

It’s natural to want to let clients know you appreciate their business or let your business partners know you like working with them.

But, there are certain limits to what you can spend on a gift and still be able to deduct it.

You are permitted to deduct a business-related gift that costs up to $25.

Although, gifts to the family members of business partners or clients are generally not deductible.

Also, if you spend more than $25 on a gift, the expense is non-deductible.

So, if you choose to buy a more expensive business-related gift, you will need to pay for it yourself.

Political Contributions and Lobbying Expenses

Many people have politicians they support and may wish to help by making a contribution.

This is not uncommon, especially if the politician supports the industry your business is in.

However, you cannot deduct any political contributions as business expenses.

Most lobbying expenses are non-deductible as well.

Entertainment and Meal Expenses

Meal expenses are typically partially deductible.

For most business-related meal expenses, you will be allowed to deduct 50% of the cost.

However, these meal expenses are not allowed to be extravagant or lavish.

Additionally, the taxpayer or an employee of the company must be there for the meal.

This deduction can be used to cover half of the cost of beverages or food given to partners, employees, suppliers, professional advisors, prospective or current clients, or agents.

So, meals that an employer provides are covered by this deduction.

For the 2021 and 2022 tax years, the full cost of business meals can be deducted if they are prepared by a restaurant, according to the Consolidated Appropriations Act of 2021.

You can also partially deduct business-related beverage and food expenses that are provided during an entertainment event under the following conditions:

• The food or beverages are bought separately from the entertainment with an invoice, receipt, or bill showing this.
• The amount of the purchase shows that the price being paid for the food and beverages is the typical price for the items when someone is buying them separate from any entertainment, or the price being charged is reasonable considering the items’ value.

For example, if you take a client to a concert and buy food, half of the cost of the food can be deducted with the appropriate receipts.

However, if you take a client to a dinner show where the tickets include the food, this is non-deductible unless the receipt separates the cost of the food and beverages.

There are certain food and beverage expenses for which the 50% deduction will not apply, such as:

• Food and beverage expenses for which you are reimbursed
• Food and beverages that are sold to paying customers that are also consumed on the business premises by employees
• Expenses that are considered compensation
• Food and beverages that are available to the public, of which more than 50% are consumed by the general public, such as by visitors, customers, and clients
• Food and beverage expenses that are for social, recreational, or similar activities unless the activities discriminate in favor of officers, shareholders, or highly compensated employees of the business that own at least a 10% share in the business

Illegal Payments or Fines

Illegal payments, including bribes or kickbacks, as well as any other payments that are part of an illegal activity, cannot be deducted.

Additionally, fines or penalties a business must make for violating the law are not allowed to be deducted.

Key Takeaways

• It is not always easy to determine which expenses are deductible and which are non-deductible. One of the best ways to distinguish between them is to determine whether or not the expense is a personal expense, in which case it is not deductible.
• Any expenses that are related to personal spending or activities are non-deductible. Commuting costs, political contributions, as well as gifts that cost more than $25, are also not deductible.