Article By: Jackie Espinoza, CPA
Meals and Entertainment under the Tax Cuts and Jobs Act of 2017 (TCJA)
The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017 has made significant changes to the deductibility of certain types of business meals and entertainment expenses. The Act eliminates, or significantly limits, taxpayers’ deductions for meal and entertainment expenses as well as certain fringe benefit expenses incurred in relation to business activities of the taxpayer after December 31, 2017.
Under the previous legislation, taxpayers could deduct 50% of entertainment, amusement or recreation expenses incurred for activities that were directly related to (or associated with) the active conduct of its trade or business. Under the new tax law, most business entertainment expenses will be considered nondeductible. One notable exception would be expenses incurred for the benefit of the taxpayer’s employees (e.g. office holiday parties) which remain 100% deductible.
The Act also significantly limits an employer’s ability to fully deduct expenditures associated with de minimis fringe benefit meals, as well as meals provided for the convenience of the employer at an employer-operated dining facility. Business meals occasionally provided to employees and for the convenience of employers are no longer fully deductible and subject to the 50% deductibility limitation.
In order to claim a business meal deduction several requirements must be met. The meal must occur during the taxable year for trade or business, cannot be considered extravagant for the event, and the taxpayer or employee of the taxpayer must be present. If food and beverage are part of an entertainment activity, documentation is required that the food and beverage were purchased separately from the cost of the entertainment activity.
|Client business meals||50% deductible if business is conducted, taxpayer is present, and the expense is not lavish or extravagant. (Documentation of business purpose is essential).|
|Event tickets (sports, theater, etc.)||Non-deductible|
|Meals provided for the convenience of the employer||50% deductible (non-deductible after 2025)|
|Meals occasionally provided to employees and overtime employee meals||50% deductible (non-deductible after 2025)|
|Water, coffee, and snacks at the office treated as de minimis fringe benefits||50% deductible (non-deductible after 2025)|
|Meals with clients during entertainment events||50% deductible if meal cost is separately stated from entertainment (documentation is essential)|
|Meals during business meetings with prospects||50% deductible (non-deductible for former clients)|
|Meals during business travel||50% deductible|
|Meals at seminars, conferences, or at business league events||50% deductible|
|Meals included as taxable compensation to employee or independent contractor||100% deductible|
|Meal expenses sold to a client or customer (or reimbursed)||100% deductible|
|Food offered at no charge to the public (e.g., at a seminar)||100% deductible|
|Office holiday party or picnic||100% deductible|
Jackie Espinoza, CPA
The material provided is to be used for informational purposes only and does not constitute legal, business or tax advice. Each individual should consult their own attorney, business advisor or tax advisor with respect to matters referenced in this post.