For more than three decades companies have been able to deduct 50% of meals and entertainment expenses directly related to business activities. This included taking potential clients, employees, or other business associates to lunch. It also included meals while on business related trips.
Additionally, employers that provided meals to employees on business premises had been able to deduct 100% of the expense as a "de minimis" fringe benefit. One of the many changes the Tax Cut and Jobs Act of 2018 included was directly related to these types of expense deductions.
The 2018 tax changes included provisions that made the deduction of such expenses quite unclear. However, recent IRS Guidance has provided some clarity. As we review some of the details of this new guidance, keep in mind the clarification of vague tax law can go through many phases that include IRS Guidance, court filings and cases, as well as amendments to tax law. Consider this the first of a multi-step process, but a bit of clarification nonetheless.
The basic summary according to the is as follows.
Meals are still 50% deductible as long as the following conditions are met.
the taxpayer or an employee is present
the food or beverage is not considered lavish or extravagant
the mealse are provided to a current or potential customer, client, consultant, or similar business contact
meals must be purchased separately from an event to not be considered entertainment
Entertainment, amusement, or recreation related expenses are no longer deductible.
For both meals and entertainment expenses, more guidance and IRS rulings are expected. As always keep in mind that we do not provide tax advice, so talk to your CPAs and tax advisors for further clarity. Additionally consider the following resources for more details as they are processed through the tax regulation system.