Since the new tax law, also known as the Tax Cut and Jobs Act (“TCJA”), was enacted by Congress and signed into law in December of 2017, the IRS has begun to issue some clarifications on portions of the law. On October 3, 2018 the IRS issued Notice 2018-76 which provides further clarification as to the deductibility of meals and entertainment expenses incurred by businesses.
Are entertainment expenses still deductible?
The notice states that expenses regarding entertainment, amusement and recreation are generally no longer deductible based on revisions made under the TCJA. Examples of these entertainment expenses are sporting event tickets, club memberships, and entertainment.at night clubs, cocktail lounges, and theaters.
However, meals that are not included in the entertainment expense (i.e. purchased separately) may be 50% deductible. In order for the meals to be deductible there must be business conducted, the taxpayer or employee must be present and the meal must not be considered to be lavish or extravagant. It is imperative that the meals are properly documented with the ability to prove the amount, date & place, the purpose of the business discussion, and who participated.
The following meal expenses are now subject to the 50% limit according to the IRS Notice 2018-76 (they were 100% deductible prior to the TCJA) :
• Meals provided to the employees for the convenience of the employer (fringe benefits)
• Meals provided occasionally to employees to enable them to work overtime or weekends (fringe benefits)
• Office snacks and beverages (fringe benefits)
• Meals provided as part of a charitable sports ticket
The following meal expenses continue to be subject to the 50% limit:
• Meals provided for business meetings for employees, stockholders, and directors
• Meals during business travel
• Meals at conventions, seminars, or any type of meeting
• Business meals with clients, customers, and vendors provided the amount is not considered lavish or extravagant
Don’t worry, the company picnic and holiday party meal expenses are still 100% deductible.
As the year begins to wind down, it may be a good idea to sit down with your tax professional to see how the new tax law will affect you. Even if you have not needed tax planning in the past, some of the new changes may cause headaches this upcoming tax season which may be avoidable with proper tax planning.
Our offices are always available to answer your questions. Feel free to give us a call at (714) 569-1000!
Jon brings with him over 15 years of tax and accounting experience. His area of expertise includes tax compliance and consulting for corporations, partnerships, limited liability companies, trusts and high net worth individuals. Jon works with clients on complex tax issues including business acquisitions and dispositions, real estate acquisitions, 1031 exchanges, and debt restructuring. He consults with clients on various tax minimization strategies to defer revenue and accelerate deductions. His clients include those in the manufacturing, distribution and wholesale, healthcare, real estate, and professional service industries.
You can reach Jon at 714-569-1000