Since the release of the Tax Cuts and Jobs Act in late 2017, one major point of discussion has been the deductibility of expenses for business meals. The Act amended §274, treating all entertainment expenses as non-deductible. However, the Act did not specifically clarify if certain business meals would automatically be considered entertainment expense and therefore non-deductible as well.
The Internal Revenue Service has now issued Notice 2018-76 confirming that many business meals will continue to be 50% deductible going forward. The Notice provides that the following requirements must be met to qualify for the 50% deduction:
- The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
- The expense is not lavish or extravagant under the circumstances;
- The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
- In the case of food and beverages provided during or at an entertainment activity, the food and beverages 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. (Example: A business owner takes a prospective client to a baseball game and buys food at the concession stand. The cost of the tickets are non-deductible as an entertainment expense but the cost of the food is 50% deductible assuming all of the requirements above are met.)
The Treasury Department intends to issue Proposed Regulations under §274 but taxpayers may rely on this notice until the new Regs are effective.
For additional information on the changes the Tax Cuts and Jobs Act made to meals and entertainment expenses see our previous blog.