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TAX DEDUCTIBILITY OF BUSINESS MEALS AND ENTERTAINMENT

July 3, 2018

TAX DEDUCTIBILITY OF BUSINESS MEALS AND ENTERTAINMENT

The Tax cuts and Jobs Act held many changes to tax planning and required documentation for business owners in 2018. One of those changes is meals and entertainment deductibility. Prior to 2018, meals and entertainment have been mostly considered 50 percent deductible for tax purposes as long as the taxpayer could show that the meal and/or entertainment had a business purpose or relation. There were even circumstances where the taxpayer could deduct 100 percent under specific exceptions. Tax years beginning Jan. 1, 2018 or later will be held to stricter guidelines for meals and entertainment deductibility. Entertainment is now considered completely nondeductible. For employer provided operating facilities, meals are still considered 50 percent deductible, however, at this time it is unclear whether business meals, lunch or dinner with a customer, etc. will be 50 percent or 0 percent deductible. 

The following examples are still considered 100 percent deductible expenses:

  • Expenses treated as employee compensation
  • Reimbursed expenses while away for business travel
  • Expenses for recreational, social or similar activities primarily for the benefit of employees (such as an employee Christmas party or picnic)
  • Expenses for goods, services and facilities made available by the taxpayer to the public
  • Expenses for goods or services which are sold by the taxpayer in a bona fide transaction

There is still uncertainty about the deductibility of business meals as 50 percent or 0 percent deductible as noted above. The portion of the old law, "directly related to or associated with" standard has been removed in determining deducibility under the new law. Further guidance on business meals as well as what is considered "entertainment", which is not deductible for tax purposes, is anticipated to be released at a later time. Until then, it is important for taxpayers to be tracking 100 percent deductible meal expenses as listed above, other business meals, and entertainment expenses separately to reduce further work at year-end after further guidance is available on the deductibility of these expenses. 

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