IRS Proposes New Rules for Deducting Meals and Entertainment

Theresa FerroneBlog

The Internal Revenue Service has released a set of proposed regulations for businesses to follow when deducting meals and entertainment, in response to the 2017 tax overhaul.

The Tax Cuts and Jobs Act got rid of the deduction for any expenses related to activities typically considered to be for entertainment, amusement or recreation. It also restricted the deduction for expenses related to food and beverages offered by employers to workers.

The regulations proposed Monday by the IRS eliminates the deduction for expenditures related to entertainment and give guidance to figure out whether an activity is considered to be entertainment. The proposed rules also deal with the limitation on the deduction of food and beverage expenses.

The proposed regulations can have an impact on taxpayers who pay or incur expenses for meals or entertainment. Some common examples of deductible meals and entertainment include: a company-wide party for employees (such as holiday parties), or when foods and beverages are provided free of charge for public events. Some examples of meals and entertainment that will be 50% deductible include: a non-lavish meal with a client where business is discussed, employee meals while traveling, and meals for board meetings.  However, expenses for entertaining clients, such as concert tickets or golf outings are non-deductible. 

The proposed rules note that while the Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses, Congress didn’t amend the provisions relating to the deductibility of business meals. That means taxpayers can generally continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel. However, no deduction is permitted for the expense of any food or beverages unless the expense is not lavish or extravagant under the circumstances, and the taxpayer (or the taxpayer’s employee) is present while the food or beverages are being provided.

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