October 23, 2018
There has been substantial discussion surrounding the tax law, specifically the dis-allowance of business entertainment deductions. In the past, business meals and entertainment expenses were lumped together in one category and were subject to only a 50% deduction for tax purposes.
Beginning January 1, 2018 the new tax law states that entertainment expenses (sporting events, golf outings, etc.) were no longer deductible at all for tax purposes. Many people also took that to include business meals too. Our firm took the approach that business meals were separate from business entertainment and we instructed you to create a separate account for meals and a separate account for entertainment so we could easily identify them during the course of the year.
The IRS recently came down with some guidance on the business deduction for meals. The IRS is putting together some proposed regulations, but for now we can rely on Tax Notice 2018-76 for clarification. The tax notice basically states that business meals that have been deducted (at 50%) in the past will still be allowed in 2018 and forward. This agrees to our firm’s interpretation of the original law change and supports the approach we stated earlier this year.
The following is an excerpt from the tax notice 2018-76.
In Notice 2018-76, the IRS states that taxpayers may deduct 50 percent of an otherwise allowable business meal expense if the following conditions are met:
(1) the expense is an ordinary and necessary expense under Code Sec. 162(a) paid or incurred during the tax year in carrying on any trade or business;
(2) the expense is not lavish or extravagant under the circumstances;
(3) the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
(4) the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
(5) in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts and the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.
As we stated earlier this year, for 2018 and in the future, you can still deduct business meals (at 50%) as you have in previous years providing you continue to follow the above listed conditions.
If you have any questions regarding this, please contact our office.