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Business meals still deductible at 50% under IRS guidance

Oct 05, 2018

Good news for those who incur expenses for business meals. At least for now, such expenses still may be deducted on 2018 tax returns at the 50% rate that has been in effect for several years.

The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

However, the IRS last week issued guidance that dispels confusion around whether deductibility of business meals was affected by TJCA.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  • The expense is an ordinary and necessary business expense paid or incurred during the tax year when carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  • For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

As the IRS explains, if a business taxpayer takes a client to a baseball game, the price of the tickets is not deductible. However, if the taxpayer buys the client a hot dog, the cost of the hot dog is deductible at 50%. Important to note is that the cost of the hot dog is separate from the cost of the game tickets. If they were a package deal, the costs would not be deductible unless separately stated.

Proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment will be published by the IRS and the Department of the Treasury at a later date. Until then, taxpayers can rely on guidance this week’s IRS guidance.

We will continue to monitor the guidance and regulations around TCJA and keep you informed as they are made public.

In the meantime, if you have any questions, please contact Carol A. Magyar, CPA, MST or Charles R. Kennedy, CPA.

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