Most business meals are still deductible, subject to the 50% limitation

If you’ve been following the tax journals or related social media accounts, you no doubt saw that the Tax Cuts & Jobs Act (“TCJA”) removed the deduction for business related entertainment expenses. There was a lot of concern that the meals portion of “Meals & Entertainment” expenses would also be denied because of some related tax regulations and previous court cases.

At one point, many leading experts were warning that a literal reading would deny both the business meals and business entertainment expenses under the TCJA. The AICPA even had a blog post on this but it has since been removed. All the speculation made for some interesting conversations with clients.

Picture of a group of people around a table eating dinner.
IRS clarifies deductions for business meals. | Photo by Priscilla Du Preez on Unsplash

The IRS announcement on October 3, 2018, comes as a relief to many business owners and their accountants. The announcement clarifies that business meals are still deductible and are still subject to the 50% limitation. There are still some requirements like it has to be a real business expense (this has not changed) and the meals, food, beverages, etc., must be separately stated from any entertainment expenses that coincide with the expense.

Here is the IRS Announcement they sent out this morning:

IRS issues guidance on Tax Cuts and Jobs Act changes on business expense deductions for meals, entertainment

WASHINGTON — The Internal Revenue Service issued guidance today on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.

Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.

The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

#TaxTwitter should have a field day coming up with hot dog jokes!

As a reminder, this is not intended to be tax advice. If you need assistance in determining whether your business meal expenses are deductible, please contact a tax professional.