What Is Going On with Meals & Entertainment Deductions?
If you have been reading my posts or subscribe to Taxbot University, you will have known that the 50% deduction for business meals was uncertain due to ambiguous wording in the new tax law. Tax professionals were very split on whether this deduction survived.
However, IRS has recently given guidance on this and noted that the 50% deduction for business meals survives. Yeah!!
In order to deduct these meals, there are some requirements :
- The meal is ordinary and necessary for a trade or business
- The expense isn’t lavish or extravagant.
- You, the taxpayer, or one of your employees, are present at the furnishing of the food or beverage. (thus gifts of meals won’t be deductible unless you are there)
- The food or beverage is provided either during an entertainment activity (such as a ball game) or are purchased separately from the entertainment or are stated separately from the cost of the entertainment in one or more bills or invoices.
Here are some examples explaining this:
- Example 1: John Invites Joe a business contact, to a baseball game. John purchases tickets for both he and Joe to attend the game. While at the game John buys hot dogs and drinks for both of them. Since the baseball game is deemed entertainment, John can’t deduct the tickets for the game. He may, however, deduct 50% of the cost associated with the hot dogs and drinks.
- Example 2: Jim invites Alan, a business contact to a basketball game. Jim purchases tickets for both he and Alan to attend the game in a suite, where they have access to both food and beverage. The cost of the basketball tickets, stated on the invoice, includes food and beverage. The cost of the food and beverage is not stated separately on the invoice. Accordingly, none of the expense is deductible.
- Example 3: Assume the same facts as in example 2, except that the invoice for the basketball game separately states the cost of the food and beverage. Therefore, the cost of the tickets aren’t deductible since they are deemed entertainment , but the cost of the good and beverage is 50 percent deductible.
Hopefully, this should clarify most questions in this area. Feel free to share this post.
In case your accountant wants to know where I got this information, It came from IRS notice 2018-76, 2018-42 (10/3/2018)
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