The Tax Cuts and Jobs Act passed in 2017, and effective in 2018, provides businesses with a reduced tax rate, but also significantly alters the tax deductions businesses can claim. Some major categories of tax deductions that have been adjusted are meals, entertainment, and travel for either employees or clients. The changes are provided in the chart below:
TCJA repealed the entertainment deduction as a business expense entirely.
The IRS recently issued additional guidance regarding the new meals and entertainment deductions:
a) The expense is an ordinary and necessary business expense and is paid or incurred in carrying on a trade or business;
b) The expense is not lavish or extravagant;
c) The taxpayer, or an employee of the taxpayer, is present at the time the food and beverages are provided;
d) The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact;
e) If the food and beverages are provided during an entertainment event, the cost of food and beverages must have been paid for separately from the cost of the entertainment, or the cost of the food and beverages must have been stated separately in any contract, invoice or receipt; and
f) The entertainment expense disallowance is not circumvented by inflating the cost of food and beverages.
The IRS has provided examples illustrating the requirement in paragraph (e):
Example One: Taxpayer takes a client to a baseball game. The cost of the tickets to the game is an entertainment expense that cannot be deducted. During the course of the game, the taxpayer purchases food and beverages for him/herself and the client. Fifty percent (50%) of the cost of the food and beverages is deductible because the cost was incurred separately from the entertainment cost.
Example Two: Taxpayer takes a client to a baseball game. The seats are in a suite and the tickets include food and beverages. None of the expense is deductible. The football game is an entertainment expense. Since the cost of the food is not separate from the cost of the tickets, there can be no food and beverage deduction. If the tickets, however, separate the cost of admission from the cost of the food and beverages, the cost of the food and beverages is a 50% deductible expense.
If you are interested in deducting your meals and travel expenses, please do not hesitate to contact one of our knowledgeable attorneys at EPGD Business Law, located in beautiful Coral Gables and historic Washington, D.C. Call us at (786) 837-6787 or email us to schedule a consultation.
*Disclaimer: This blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*