In our previous blog post, “Meals and Entertainment Deduction – What’s Changed?”, we covered the significant changes the Tax Cuts and Jobs Act (TCJA) made to the deductibility of meals and entertainment and the corresponding bookkeeping changes we recommend.
One of the items discussed in that post was Business Meals expenses. Prior to the enactment of the TCJA, there was no need to break out meals and entertainment, as they were both 50 percent deductible; however, the new law repealed all deductions for entertainment, amusement, and recreation, regardless of whether they have a business purpose. Defining the line between meals and entertainment became critical to determining deductibility but guidance on this was limited. We’ve received some instruction and we have some good news to share!
IRS Business Meal Deduction Guidance
In October, the IRS issued Notice 2018-76, giving guidance on Business Meals allowing meals to be deducted, subject to a 50% limitation, as long as the meals are:
- Considered ordinary and necessary expenses in carrying on a trade or business
- Not lavish or extravagant under the circumstances
- The taxpayer or an employee is present during the furnishing of food and beverage
- The food and beverage are provided to a current or potential business customer, client, consultant, or similar business contact
In the case of food and beverage provided during an entertainment event, the food and beverage are deductible if they are purchased separately from the entertainment or the cost is stated separately from the cost of entertainment on one or more bills/invoices/receipts. The notice does specifically state the entertainment disallowance rule cannot be circumvented through inflating the amount charged for food and beverage.
The Department of the Treasury and IRS intend to publish proposed regulations, which will include further guidance. In the meantime, we’re able to rely on the opinions in the Notice.
Don’t leave any possible deductions off of your return! Visit our blog post, “Meals and Entertainment Deduction – What’s Changed?” to understand how to break out expenses in order to maximize your meals deduction. Contact your PBMares tax advisor with any questions or for help implementing a new procedure for accounting for meals and entertainment.