Meals and Entertainment Clarification

By David Thompson & Caleb Lendy

The Tax Cuts and Jobs Act (TCJA), passed in December of 2017, presented many notable changes to the individual income tax. From nearly doubling the standard deduction, to adding new limitations on itemized deductions; These changes have simplified the process for many individuals who are performing their income tax returns. However, one such change has created widespread debate as to how to handle it come tax time. That is, of course, the deduction of meals and entertainment. When the TCJA was first passed, there was little clarification on how much (or how little) you could deduct. Many interpreted from the law that the entirety of meals and entertainment would no longer be deductible.  Others read it to mean that entertainment was no longer deductible, but the related meals still were 50% deductible. In attempts to clear the air, the AICPA wrote a letter to Congress requesting clarification on the matter.

In the letter, written on April 2, 2018, the AICPA recommended that certain meals still qualify for a deductible. In order to qualify for these deductions, the AICPA deemed it important that these meals be between business owners/ employees and current or potential clients, that they are not lavish or excessive, and that the taxpayer has somewhat of a reasonable expectation to derive income or some sort of business benefit from the meal. With the issuance of Notice 2018-76 on October 3rd, the IRS confirmed that those qualifications are essential. With those being met, meals are still allowed a deductible of up to 50%. Additionally, if food and beverages are purchased separately from the entertainment event, those meals would be deductible as well.

In the coming months, the IRS is expected to pass further proposed regulations as guidance for taxpayers. For now, it appears that business meals will be safe to take as a 50% deduction in 2018.

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