With the passing of TCJA, there are some important changes we’d like you to be aware of, particularly those affecting meal and entertainment deductions. Previously, you were able to expense up to 50% of the cost of certain meals and entertainment for business purposes. Now, however, you may only deduct 50% of business meals with no allowable deduction for entertainment. Additionally, the term “business meals” can only be applied under the following conditions:
- First, the actual taxpayer must be in attendance.
- Second, the cost may not be excessive.
- Third, the meal is purchased for a person involved in the actual business activity.
- Finally, the food has to be purchased or listed separately from any entertainment costs, as entertainment may no longer be included as a deduction.
There is no longer a 100% deductible meals category for client events, except for presentations, and only the above mentioned meals qualify for a 50% deduction. Employee to employer deductions are still at 50% deductible for meals, under the above circumstances, unless it qualifies as a team building event, in which case it is 100% deductible.
Confused? The M&E area is arguably a pretty gray area. Best practice for your business is to consult your tax advisor on the deductibility of these trickier food expenses.
These changes might seem drastic to some business owners but minimal to others. We recommend rearranging your Chart of Accounts to show any entertainment cost as an “other business expense,” i.e. below the “Net Income” figure. Review your meals categories to follow the new IRS guidelines, and make sure management understands what kind of meals are deductible. This could change the way you think about company meals, client-facing meals, and team meetings. For more clarification and other new information/updates, please see the IRS website here: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses. As always, for more clarity on your books, better tax strategies, and lasting relationships, contact Sweeten CPA.