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CLARIFICATION ON DEDUCTING MEALS & ENTERTAINMENT

by Lisa McAllister

A lot of changes came through the Tax Cuts and Jobs Act, but one of the most talked about changes was the deduction for Meals and Entertainment. This week, the IRS issued guidance on what can and cannot be deducted for tax years beginning in January, 2018.

Here’s the easy part – if there is any evidence of entertainment in the deduction, the expense is not deductible. So, the golf outings and tickets to football and baseball games are not deductible, even when your team is the reigning Super Bowl Champion.

Meals will still be deductible at 50% of the cost of the meal, but there are conditions that must be met.

  • The expense is an ordinary and necessary business expense under Section 162(a) of the Internal Revenue Code, 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 Dom Perignon probably won’t fly).
  • The taxpayer, or an employee of the taxpayer, is present when the food and beverages are furnished.
  • The food and beverages are provided to a current or potential business customer, client, consultant or other similar business contact.

What if you do take your client to a football game and buy him or her something to eat and drink?  Can you deduct that?  Maybe.

In addition to meeting the requirements above, the food and beverages must be purchased separately from the entertainment, or the cost must be separately stated on the bill, invoice or receipt. The IRS will be on the lookout for taxpayers trying to circumvent the disallowance of entertainment expenses by inflating the amount charged for food and beverages.

One more thing to remember – keep accurate records of these expenses as the IRS has implied they are going to require more contemporaneous documentation as to the reason, place, time and who you are wining and dining, for your expense to be deductible.

We’d love to hear from you with your questions or concerns about this, or any changes impacting your business.

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