Meals Still Deductible Under New IRS Guidance

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Back in June, we detailed changes made by the Tax Cuts and Jobs Act (TCJA) to meal and entertainment deductions for businesses. Remember that, the TCJA eliminated deductions for entertainment-related expenses and reduced to amount deductible related to employer-operated eating facilities to 50% of the related expenses. Still, many questions remained. Would businesses continue to be able to deduct 50% of the costs of business meals? Would meals at a company-sponsored ballgame be part of the entertainment cost (and therefore non-deductible) or would they be separated out and remain 50% deductible? Today, we got some answers.

The IRS today issued interim guidance that will allow businesses to continue to deduct 50% of business-related meals, despite changes set forth by the TCJA. Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business; 
  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; 
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and 
  5. 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. In other words, don’t allow the entertainment facility to provide an “all inclusive” price. Make sure the entire food cost is separately stated so you can claim the deduction.

Overall, this is good news for businesses. Of course, we’ll continue to look to IRS for proposed regulations and update you as changes occur. For now, rely on this interim guidance as you plan your upcoming events. And, as always, feel free to reach out to us for help.

 

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