Since the new Tax Cuts and Jobs Act (TCJA), there’s been a lot of questions and rumors in the tax community, while the IRS has been hard pressed to clear up some of the confusion.
Their latest Notice? Whether or not entertainment and meal tax deductions were cut.
Turns out, the rumors surrounding that decision were true – the IRS officially confirming that entertainment write-offs are no longer accepted, while meal deductions will remain at 50%.
With the new Notice 2018-76, comes a few simple rules:
• All meals must qualify as a standard business expense in accordance with Section 162(a);
• The expense cannot be extravagant, a luxury item, or over the top;
• An employee or the business owner themselves must be present for the meal;
• The meal purchased is given to a current or prospective client, customer, consultant, or business contact; and
• If the meal is provided along with entertainment, such as purchased at a ballgame, the cost of the food or drink must be bought separately from the entertainment, or otherwise reported individually on tax records.
In upcoming months, the IRS plans to release more publications on the details behind what qualifies as nondeductible entertainment and when business meals may be eligible for 50% deductions, but until then, taxpayers are advised to follow the regulations given in Notice 2018-76, as well as seek the advice of their tax professionals.
If you have questions on how this change applies to you, consult with your CPA and see how this may affect your tax return.
(Thanks to this article by Ken Berry for the research!)