Entertainment Expenses No Longer Deductible but IRS Clarifies Deduction of Meal Expense
Under the Tax Cuts and Jobs Act, a business expense deduction is no longer allowed for most entertainment expenses after 2017.
The IRS issued guidelines that allow a 50% deduction for business meals provided certain conditions are met. As provided in Notice 2018-76, a deduction is allowed for 50% of an otherwise allowable business meal expense if all of the following conditions are met:
1. The expense is an ordinary and necessary business expense paid or incurred during the taxable year;
2. The expense is not lavish or extravagant under the circumstances;
3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
5. For food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on a bill, invoice, or receipt
The new law also does not change the rule that allows employers to fully deduct the costs of providing food and beverages at a holiday party or picnic for employees.