As we have posted previously, the Tax Cuts and Jobs Act (TCJA) made changes to the business expense deduction for meals and entertainment. The TCJA disallowed the deduction for expenses related to activities generally considered to be entertainment, amusement or recreation, that were incurred in years beginning after December 31, 2017. However, in most cases, taxpayers may continue to deduct 50% of food and beverage expenses associated with their trade or business.
A recent Internal Revenue Service Notice, provided clarification to ensure taxpayer understanding of the allowable deduction of business meals.
The deduction is permitted if: (1) the expenses are ordinary and necessary; (2) the expenses are not lavish or extravagant; (3) the taxpayer, or an employee of the taxpayer, is present when food or beverages are provided; (4) food or beverages are provided to a current or potential business customer, client, consultant or similar business contact; and (5) food or beverages are purchased separately from entertainment (or stated separately on one or more bills, invoices or receipts).
Taxpayers should ensure that amounts deducted in 2018 and forward meet the criteria set forth above, and provide accurate records in case the returns are challenged by the Internal Revenue Service.
Taxpayers were advised that they may rely on this guidance until proposed Treasury regulations providing further guidance are published by the Internal Revenue Service. Additional updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.