Definition§
The term “Three-Martini Lunch” refers to a type of lavish business lunch typified by the consumption of multiple martinis. This term became popular as a symbol of business extravagance and indulgence. Historically, these lunches were often claimed as tax-deductible business expenses in the United States. However, changes in tax legislation with the 1993 Tax Act reduced the extent to which such expenses could be deducted, allowing only 50% of the cost of business meals to be deducted for tax purposes.
Examples§
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Historical Context Example: In the 1960s and 1970s, executives often engaged in extended lunches that included multiple cocktails. These lunches were not only seen as commonplace but also as legitimate business expenses fully deductible from taxes.
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Tax Legislation Example: Post-1993 Tax Act, a business executive attends a lunch meeting, and the entire cost of the meal and drinks is $200. Under the revised tax laws, only $100 (50%) of the expense can be deducted for tax purposes.
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Modern Example: An advertising agency holds a client meeting at an upscale restaurant. Despite the meals being partially deductible, the company must apportion only 50% of the cost as a business expense deduction on their taxes.
Frequently Asked Questions (FAQs)§
What is a three-martini lunch?§
A three-martini lunch is a luxurious, protracted business lunch often characterized by the consumption of multiple martinis and historically claimed as a tax-deductible business expense.
Why is the three-martini lunch significant?§
It became emblematic of business excess and opulence. This led to tax reforms in 1993, which established that only 50% of the cost of such business meals could be deducted for tax purposes.
Are three-martini lunches still common today?§
While the culture of lavish business lunches has diminished, expensive business meals still occur, subject to tax deduction limitations as per current laws.
What changes did the 1993 Tax Act make concerning meal deductions?§
The 1993 Tax Act restricted the deductibility of business meal expenses to 50% of the cost, altering the previously more lenient full deduction policy.
Can businesses deduct alcohol expenses under current tax laws?§
Yes, businesses can deduct alcohol expenses, but these costs must be part of a business meal, and only 50% of these expenses are deductible.
Related Terms§
- Business Expense: Costs incurred in the ordinary course of business. Deductible expenses must be both ordinary and necessary.
- Tax Deduction: Reduction of income subject to tax by claiming allowable deductions.
- Entertainment Expenses: Costs for entertaining clients and associates, often subject to specific deductibility limitations.
- 1993 Tax Act: Legislation that, among other changes, limited the deductibility of business meal expenses to 50%.
- Expense Account: Company account used by employees to report subsistence and other job-related expenditures.
Online References§
Suggested Books for Further Studies§
- “Tax Savvy for Small Business” by Frederick W. Daily
- “J.K. Lasser’s Small Business Taxes 2023” by Barbara Weltman
- “Don’t Get Emasculated by the IRS: A Barricade Against Business Entity Reporting Acronyms” by Scott Moran
Fundamentals of Business Expense Deductions: Taxation Basics Quiz§
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