{"id":2940,"date":"2019-02-05T10:52:11","date_gmt":"2019-02-05T15:52:11","guid":{"rendered":"http:\/\/keysolutions.us\/blog\/?p=2940"},"modified":"2019-02-05T10:52:19","modified_gmt":"2019-02-05T15:52:19","slug":"are-meals-deductible-by-a-business","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/are-meals-deductible-by-a-business\/","title":{"rendered":"Are Meals Deductible By a Business?"},"content":{"rendered":"\n

<\/p>\n\n\n\n

Are Meals Deductible By a Business?<\/strong><\/p>\n\n\n\n

Tax Cuts & Jobs Act Changed the Rules: Are\nBusiness Meals Non-deductible, 50% Deductible, or 100% Deductible?<\/strong><\/p>\n\n\n\n

Background<\/strong><\/p>\n\n\n\n

Effective January 1, 2018, Internal Revenue Code Sec. 274(a), as modified by the Tax Cuts and Jobs Act (TCJA), disallows any otherwise allowed deduction from income tax for an activity or facility that constitutes entertainment, amusement, or recreation. Sec. 274(k) disallows a deduction for any food or beverages unless: (1) the expense is not lavish or extravagant under the circumstances, and (2) the taxpayer (or employee of the taxpayer) is present at the furnishing of the food or beverages. Sec. 274(n)(1) limits the deduction for any expense for food or beverages to no more than 50% of the expense that otherwise would be allowable.<\/p>\n\n\n\n

The TCJA repealed the exception from Sec. 274(a) that preserved a\ndeduction for business entertainment if it is directly related to or associated\nwith the active conduct of business. This\nchange effectively eliminates business entertainment deductions<\/strong>. Treasury\nregulations define “entertainment” using an objective standard,\nincluding activity “of a type generally considered to constitute\nentertainment,” such as “entertaining at night clubs, cocktail\nlounges, theaters, country clubs, golf and athletic clubs, [and] sporting\nevents.” Under the regulations, entertainment may include activities that\nsatisfy “personal, living, or family needs” but does not include: (1)\nsupper money an employer provides to an employee working overtime; (2) a hotel\nroom maintained by an employer for lodging of employees while traveling for\nbusiness; or (3) an automobile used for business, even though it is also used\nfor routine personal purposes, such as commuting to and from work.<\/p>\n\n\n\n

IRS Notice 2018-76<\/strong><\/p>\n\n\n\n

The notice clarifies that the TCJA did not change the definition\nof entertainment under Sec. 274(a)(1) and, therefore, the regulations defining\nentertainment continue to apply. In addition, the notice states that the TCJA\ndid not address when the provision of food and beverages might constitute\nentertainment, observing that “the\nlegislative history of the [TCJA] clarifies that taxpayers generally may\ncontinue to deduct 50 percent of the food and beverage expenses associated with\noperating their trade or business.”<\/strong><\/p>\n\n\n\n

Under the notice,\ntaxpayers may deduct 50% of an otherwise allowable meal expense if:<\/strong><\/p>\n\n\n\n

1. The expense is an ordinary and necessary expense under Sec.\n162(a) that is paid or incurred during the tax year in carrying on a trade or\nbusiness;<\/p>\n\n\n\n

2. The expense is not lavish or extravagant under the\ncircumstances;<\/p>\n\n\n\n

3. The taxpayer or the\ntaxpayer’s employee is present at the furnishing of the food or beverages;<\/strong><\/p>\n\n\n\n

4. The food and beverages\nare provided to current or potential business customers, clients, consultants,\nor similar business contacts<\/strong>; <\/p>\n\n\n\n

AND<\/strong><\/p>\n\n\n\n

5. The food and beverages (for food and beverages provided during\nor at an entertainment activity) are purchased\nseparately from the entertainment<\/strong>, or\nthe cost of the food or beverages is stated separately from the entertainment\ncost on one or more bills, invoices, or receipts.<\/strong><\/p>\n\n\n\n

To illustrate the appropriate deduction for a food and beverage\nexpense incurred at an entertainment event, the notice provides three examples\ndemonstrating the treatment of business meals in connection with an\nentertainment activity:<\/p>\n\n\n\n

Example 1. <\/em><\/strong>Business meals purchased separately from\nentertainment<\/em><\/strong>:<\/em><\/strong>  Taxpayer A<\/em> takes B<\/em>,\na business contact, to a baseball game. A<\/em> purchases the\ntickets and separately buys hot dogs and drinks for A<\/em> and B<\/em> at\nthe game. The notice provides that the cost of the tickets is a\nnondeductible entertainment expense. However, the cost of the hot dogs\nand drinks, which are purchased separately from the game tickets, is not an\nentertainment expense. Accordingly, A<\/em> may\ndeduct 50% of the expense for the hot dogs and drinks.<\/strong><\/p>\n\n\n\n

Example 2. <\/em><\/strong>Cost for business meals commingled with\nentertainment, not separately stated or purchased<\/em><\/strong>:<\/em><\/strong> Taxpayer C<\/em> takes D<\/em>, a business\ncontact, to a basketball game. C<\/em> purchases tickets for C<\/em> and D<\/em> to\nattend the game in a suite, where they have access to food and beverages. The\nticket cost includes the costs of the food and beverages available in the\nsuite, which are not separately stated\non the invoice. The notice provides that the full cost is a nondeductible\nentertainment expense.<\/strong><\/p>\n\n\n\n

Example 3. <\/em><\/strong>Business meals separately stated from\nentertainment:<\/em><\/strong> If the invoice for\nthe basketball game tickets separately states the cost of the food and\nbeverages, the separately stated cost of the food and beverages is not an\nentertainment expense. Accordingly, C<\/em> may deduct 50% of the\nfood and beverage expense.<\/p>\n\n\n\n

Tax Planning Tip \u2013 Maintain Separate General Ledger Accounts to Maximize\nTax Deductions and Reduce Taxes<\/strong>: Understand\nthe tax rules and recording meal expenses in the correct general ledger account\nwill reduce your tax liability.<\/strong><\/p>\n\n\n\n

Tax Planning Tip \u2013 Zero % Tax Deductible<\/strong>: If your invoice shows that\nmeals are not separately stated from the cost of entertainment, the entire\ninvoice price is considered entertainment and is NOT deductible. Other non-deductible examples include:<\/p>\n\n\n\n