20.16 50% Deduction Limit

To be deductible at all, dining and entertainment costs for clients, customers, or employees must meet one of two restrictive tests (20.17). Even if the expenses qualify under one of the tests, only 50% of unreimbursed expenses are generally deductible and this 50% balance is reduced by the 2% AGI floor if you are an employee. Furthermore, all entertainment costs, including meals, must be backed up with records. If you do not keep adequate records, your deductions will be disallowed. See the discussion of the 50% deduction limit and exceptions to the limit (20.25).