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MEALS AND ENTERTAINMENT: WHAT'S DEDUCTIBLE?

October 4, 2018

MEALS AND ENTERTAINMENT: WHAT'S DEDUCTIBLE?

The Tax Cuts and Jobs Act brought many changes to the deductibility of meals and entertainment. These changes included the complete disallowance of entertainment related expenses and the reduction of the amount deductible related to employer operated eating facilities to 50 percent of the related expenses. Left unanswered was whether or not businesses could continue deducting 50 percent of the costs of business meals. Were meals while at a ballgame considered part of the entertainment cost, thus becoming completely non-deductible or would the meals be considered separately and remain 50 percent deductible? 

Today, the IRS issued favorable guidance that will allow businesses to continue deducting 50 percent of business related meals if the following five conditions are met:

  1. The expense is an ordinary and necessary expense under Internal Revenue Code section 162(a) paid or incurred during the taxable year in carrying on any trade or business,
  2. The expense is not lavish or extravagant under the circumstances,
  3. The taxpayer, or employee of the taxpayer, is present at the furnishing of food/beverages,
  4. The food/beverages are provided to a current or potential business customer, client, consultant or similar business contact, and
  5. In the case of food/beverages purchased at or during an entertainment activity, the cost of food and beverages are deductible as long as they are purchased separate from the entertainment, or stated separately from the cost of the entertainment on bills, invoices or receipts.

Businesses using an entertainment facility or having all-inclusive tickets should ensure that the price of the food is separately stated on the invoice for the activity to maintain 50 percent deductibility of the food. Without the amounts for the food being separately stated, the entire cost, including the cost of the food will be non-deductible. 

For further clarification, contact us in one of our many locations.

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