Tax Reform: What it Means for Businesses – Meals & Entertainment Deductions
October 10, 2018

Tax Reform: What it Means for Businesses – Meals & Entertainment Deductions

This week we review changes made to the deductibility of meals & entertainment expenses.

 

Entertainment Expenses

Entertainment is defined as any activity that is of a type generally considered to constitute entertainment, amusement or recreation, including entertainment at theaters, clubs, lounges and sporting events. 

Beginning in 2018, deductions are eliminated for most entertainment expenses regardless of whether the expenses are related to or associated with the active conduct of the taxpayer’s trade or business. Under prior law, these expenses were 50% deductible.

Entertainment expenses that are treated as compensation to an employee are still fully deductible. Also, expenses for recreational, social or similar activities primarily for the benefit of employees continue to be fully deductible. 

 

Business Meals 

The new tax law has created some confusion about the deductibility of business meals. Business meals remain 50% deductible if the following conditions are met:

  1. The expense is an ordinary and necessary business expense paid or incurred during the tax year;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished; and
  4. The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact.

An additional condition must now be met when meal expenses are coupled with entertainment: 

  1. For food and beverages provided during or at an entertainment activity (see above), 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.

 

De minimis Meals

Under prior law, expenses incurred by an employer for food and beverages provided to employees as a de minimis fringe benefit (e.g. coffee, donuts, occasional overtime meals etc.) were 100% deductible.

Beginning in 2018, these expenses are now only 50% deductible.

 

Have questions about how these changes will impact your business tax deductions? Give BMM a call.