There have been new tax rules put into place by Public Law 115-97, which is known as the Tax Cuts and Jobs Act (“TCJA”). These new tax laws have created a need for businesses to quickly address how they will need to account for their meals and entertainment expenses as of January 1, 2018.
Prior to the new law, businesses and taxpayers could deduct 50% of client or customer entertainment expenses, as long as the expenses were directly related to a business discussion or associated with conducting a trade or business.
Beginning on January 1, 2018, the TCJA changed the rules related to entertainment expenses, making them nondeductible. However, the cost of a meal provided during an entertainment event is still being debated on, as to whether these expenses are subject to the 50% limitation or are nondeductible. By definition, a meal expense during an entertainment event includes the cost of the food, beverages, taxes, and tips for the meal.
Also beginning January 1, 2018, on-premises employee meals are now 50% deductible (as opposed to 100% under old law). These meals are considered employee meals provided on the employer’s business premises for the convenience of the employer. As the law stands now, the on-premise employee meals will be nondeductible starting in 2025.
The following meals and entertainment rules have not changed:
- Meals that are taken while traveling are 50% deductible
- Client business meals, which are meals separate from entertainment meals, are 50% deductible
- Off-premise employee entertainment, including facilities and meals, are 100% deductible
The table below compares old law to the new TCJA rules related tor meals and entertainment.
While additional guidance related to this tax situation is being worked on by the IRS, the Barnes Dennig tax team would be happy to answer questions or discuss situations related to the tax deductibility of meals and entertainment expenses related to your unique situations. Please feel free to contact a member of our team to further discuss the new tax law changes.