As a business owner, it’s likely that you meet with prospective clients away from your place of business. Perhaps these conversations happen over lunch or dinner; maybe it’s while enjoying a sporting event. Here’s what you need to know about meal and entertainment deductions.
Generally, food and beverage expenses associated with operating a business are 50% deductible. The deductibility of this deduction did not change with the Tax Cuts and Jobs Act of 2017. However, any meals and beverages as part of entertainment need to meet an additional requirement:
Food or beverage provided during or at an entertainment activity need to be purchased separately from the entertainment or need to be separately stated on the bill, invoice, or receipt.
As a reminder, meals and beverages are 50% deductible as long as:
They are not lavish or extravagant under the circumstances;
The taxpayer or employee of the taxpayer is present;
Expense is ordinary and necessary;
The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
Food or beverage provided during an entertainment activity are purchased separately from the entertainment or separately stated on the bill, invoice, or receipt.
Employer-Provided Meals & Beverages
The new law also reduced the deduction limits of employer-provided meals and beverages as well. Prior to 2018, these expenses were 100% deductible; with the law change, they are now only 50% deductible. Below is an example:
If I asked my staff to work through their lunch hour in order to complete a project and I ordered lunch in, I would be able to deduct 100% of the cost and not report it as income to my employees. That will no longer be the case. Now as the employer, I only get a 50% deduction, not 100% of the cost to provide meals to my employees when they are doing it for the convenience of me (the employer) at the business site. This reduction is for years 2018-2025.
Prior to the new law, expenses incurred for entertainment, recreation, or amusement were 50% deductible as long as the taxpayer could establish that it was directly related to the active conduct of a trade or business. An exception did exist for events that benefit charitable organizations. The deductibility of this deduction did change with the Tax Cuts and Jobs Act of 2017. No deduction is allowed with respect to:
An activity generally considered to be entertainment, amusement, or recreation;
Membership dues with respect to any club organized for business or pleasure; and
A facility or portion of a facility used in connection with entertainment.
It is important to understand the new rules imposed with the Tax Cuts and Jobs Act of 2017.
Contact me today if you have questions or comments.
Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172 firstname.lastname@example.org