TC&JA18: IRS Guidelines on Meals & Entertainment

Since the Tax Cuts and Jobs Act (TCJA) was signed off in 2017, it has been a bumpy ride to interpret and understand what the language of the law actually denotes. We first briefly wrote about TCJA in July, and you can read it here to catch up. We also hosted a webinar on the small business implications of the lax law which you can find here.

Last month, the IRS released Notice 2018-76, which attempted to reconcile what entertainment meant before and after TCJA was enacted. So, what does this notice claim and what does it mean for us taxpayers?

In our previous newsletters and webinars, we mentioned that the TCJA technically made meals with current and prospective clients non-deductible. We hoped the IRS would issue regulations clarifying that certain meals would remain deductible. Specifically, we wanted to make sure that business meals wouldn’t be tied directly to entertainment even if they were purchased at a recreational function.

We got our wish! New regulations from the IRS make it clear that business meals are still tax deductible. The meal expense must be considered ordinary and necessary, or appropriate and helpful, to business functions. It should not be considered lavish or extravagant. To be considered tax deductible, the taxpayer or their employee(s) must be present for the meal that is being provided to the current or potential client, consultant, or contact.

Our takeaway? The primary change coming from TCJA states that entertainment functions, like concerts or sporting events, cannot be written off come tax time even if they are used as settings for business interactions. The other notable modification that will affect most of our clients declares that meals provided for the convenience of the employer are no longer 100% deductible. Now, business meals are 50% deductible until 2025 when TCJA completely phases them out.

We have created an updated PDF outlining the treatment of meals and entertainment downloadable here or from your newsletter.