Entertainment Expenses Disallowed but Meal Expenses Remain
Taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction made under the Tax Cuts and Jobs Act. According to the IRS, the amendments specifically deny deductions for expenses for entertainment, amusement, or recreation but do not address the deductibility of expenses for business meals.
Taxpayers may deduct 50% of an otherwise allowable business meal expense if:
The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business;
The expense is not lavish or extravagant under the circumstances;
The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
The IRS will not allow the entertainment disallowance rule to be circumvented through inflating the amount charged for food and beverages.