In general, the new tax Act provides for stricter limits on the deductibility of business meals and entertainment expenses. Under the Act entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under the specific exceptions in Code Section 274(e). One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees”. (i.e. office holiday parties are still deductible). Business meals provided for the convenience of the employer are now only 50% deductible whereas before the Act they were fully deductible. Barring further action by Congress those meals will be nondeductible after 2025.
Businesses should keep the new rules in mind as they plan their 2018 meals and entertainment budgets. See below for a chart comparing the rules before and after the Act.
|2017 Expenses (Old Rules)||2018 Expenses (New Rules)|
|Office Holiday Parties||100% deductible||100% deductible|
|Entertaining Clients||50% deductible||No deduction for entertainment expenses|
|Event tickets, 50% deductible for face value of ticket; anything above face value is non-deductible|
|Tickets to qualified charitable events are 100% deductible|
|Business Meals With Clients||50% deductible||50% deductible*
*If the meal is accompanied by entertainment, it must be purchased separately from the entertainment, or stated on a separate receipt, otherwise the meal is nondeductible.
|Meals Provided for Convenience
|100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits; otherwise, 50% deductible||50% deductible
(nondeductible after 2025)