Breaking the Code: Meals & Entertainment
By: Rachel Speigle Dunnigan, CPA, MSA
As we gear up for the 2018 tax season, we wanted to highlight a few changes under the Tax Cuts and Jobs Act (TCJA) relating to business meals and entertainment deductions. We’re covering some general FAQs surrounding these new laws below:
Can I still deduct the expenses of a business lunch after golfing?
While the golf portion of the day is nondeductible as an entertainment expense, you can still deduct 50% of food and beverage as long as the expenses are related to the trade or business. The IRS has clarified these rules with the following requirements: any business expenses must be ordinary and necessary; may not be lavish or extravagant; the taxpayer, or an employee of the taxpayer, must be present; the food and beverages must be provided to a current or potential business contact; and the portion relating to these meal expenses must be separately stated from any nondeductible entertainment expenses. These same rules apply to any expenses incurred relating to business meetings (i.e. quarterly sales meetings and stockholders’ meetings) as well.
I heard that the fringe benefit deductions are going away. What gives?
Unfortunately, many of these deductions are being phased out. Employee food and beverage expenses (de minimus and for the convenience of the employer) are now subject to a 50% limit on deductions and will not be deductible after 2025. Examples of these two categories include coffee/snacks provided by the employer or overtime meals. Some other fringe benefits that are nondeductible for 2018 are qualified transportation benefits and moving expense reimbursements.
We like to reward some employees with an expense-paid vacation. How is that going to be treated?
Under TCJA Law, expenses treated as compensation are still fully deductible. Similarly, any recreational expenses for all employees (holiday parties, summer outings, etc.) are still fully deductible. No change here!
My employees travel a lot – and like entertainment while they eat!
Employee travel meals are still 50% deductible; no change from pre-TCJA law. All entertainment expenses, including sporting event tickets, country clubs, theatres, etc., are no longer deductible even if they apply to trade or business expenses.
If you think that you might be affected by this update to the tax law, please reach out with your specific facts and circumstances and we would be happy to provide further guidance.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.