*This article was written by expert accountant Angie DeLong.*
The Tax Cuts and Jobs Act (TCJA), passed and signed into law in December 2017, significantly altered the tax deductions that businesses may claim for meals and entertainment expenses. Some tax deductions remain unchanged under the TCJA, but others have been reduced or entirely eliminated.
This chart summarizes the main changes effective for tax years beginning in 2018.
|Expense Category||Old Rules||2018 Rules|
|Meals and entertainment for current or potential clients, consultants, or other business contacts||· Meals: 50% deductible.
· Tickets to sporting events, concerts, etc. and costs of other types of entertainment: 50% deductible.
· Tickets to qualified charitable events: 100% deductible.
|· Food and beverages purchased separately: 50% deductible.
· Food and beverages itemized separately on entertainment bill, invoice, or receipts: 50% deductible.
· Food and beverages not separately charged: not deductible!
· Entertainment costs: not deductible!
|Meals provided to employees for the convenience of the employer||· 100% deductible if excluded from employee’s gross income as de minimis fringe benefits.
· 50% deductible otherwise.
|· 50% deductible during tax years 2018 – 2025.
· Nondeductible beginning in 2026!
|Qualifying de minimis employee food items, such as coffee, snacks, birthday cake, etc.||· 100% deductible.||· TCJA says 50% deductible, but it appears that this was not Congress’ intent. IRS technical corrections will likely change to 100% deductible.|
So what constitutes “entertainment”? The IRS definition includes any activity generally considered to provide entertainment, amusement, or recreation. For example, nightclubs, sporting events, concerts, outdoor recreation, and trips may all be considered entertainment. The cost of providing entertainment experiences for current or potential customers and business contacts is not tax deductible in 2018.
Many businesses are used to lumping meals and entertainment into one category, trusting the tax accountant to sort it all out and claim the proper deduction. That kind of record-keeping is no longer sufficient. Before closing the books on the 2018 tax year, it’s important to re-examine those meals and entertainment expenses. You may need to add some new expense categories, make necessary reclassifications, and add clarifying details. For example, if you can identify separately invoiced or purchased meals that were part of an overall entertainment expense, your client will have a tax deduction that would otherwise have been lost. You might want to create a QuickBooks expense category specifically for those meals. You’ll save tax dollars and your tax accountant will thank you!
The TCJA left some items untouched. Tax deductions by businesses for the following meal and entertainment expenses were not changed by the TCJA.
Still 50% deductible:
· Employee travel meals. The travel expenses must be an ordinary and necessary cost of traveling away from home for business. “Away from home” means that business duties require the worker to be away from the general area of his/her tax home for a period substantially longer than a day’s work, and he/she needs to get sleep or rest to meet the demands of work while away from home.
· Business meetings of employees, stockholders, agents, directors, etc.
· Expenses for attending a business meeting or convention of a 501(c)(6) organization, business league, chamber of commerce, real estate board, etc.
Still 100% deductible:
· Meals and entertainment expenses treated as employee compensation; i.e., the amount is included in the employee’s W-2 income.
· Meals, entertainment, prizes, and awards includible in the gross income of nonemployees and contractors.
· Office parties, picnics, summer outings, etc. provided primarily for the for employees.
· Promotional meals provided to the general public.