The IRS issued guidance last week on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).
The TCJA had eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.Last week’s announcement stated that taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.
For example, a meal purchased after a round of golf could be deducted. But tickets to a box to view a sporting event that includes food and drink would not be eligible for the tax break.
Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.
The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.
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