While we can definitively say that the Tax Cuts and Jobs Acts (TCJA) has eliminated the deductibility of business entertainment expenses, there has been much confusion as to the deductibility of business meals. As written, some interpretations of the TCJA make all meals with clients’ not deductible beginning in 2018. However, we believe, as do other professionals in the industry, including the American Institute for Certified Public Accountants (AICPA), that that was not the intent of lawmakers.
The AICPA has made recommendations to the IRS to clarify that under the TCJA, business meals are still 50% deductible. While nothing is certain except the current uncertainty, we believe that regulations will be forthcoming which will clarify the intent of lawmakers. The intent of which we believe was not to change the deductibility of business meals, only to eliminate the deductibility of business entertainment. As such, we are recommending that our clients continue to keep documentation of business meals with the anticipation that they will continue to be 50% deductible in 2018.
We offer the chart below as a guideline to how the Tax Cuts and Jobs Act treats certain meal and/or entertainment events:
|Amount Deductible for Tax Year 2018|
|Meals with clients and prospects||X*|
|Entertainment with clients and prospects||X|
|Employee meals for convenience of employer||X|
|Employee meals for required business meeting||X|
|Meal served at Chamber of Commerce meeting||X|
|Meals while traveling away from home overnight||X|
|Year-end party for employees and spouses||X|
|Golf outing for all employees and spouses||X|
|Year-end party for customers||X|
|Meals for general public at marketing presentation||X|
|Team-building recreational event for all employees||X|
|Golf, theater, or hockey game with your best customer||X|
As a reminder, you should keep the following records to substantiate business meals:
- Name of person dining with
- Name of restaurant
- Brief description of business discussed
- For meals of $75 or more, you should have a receipt with the name of restaurant, number of people at the table, and itemized list of food and drink
* Technically, the TCJA may have made meals with clients and prospects not deductible. We believe that the tax writers will modify the law to make “so called non-entertainment meals” with clients and prospects deductible.