If you are searching for “entertainment expense deduction 2018” or “IRS meals and entertainment 2018“, this guide should help! The Tax Cuts and Jobs Act of 2017 made big expense deduction changes to entertainment and business meals starting in 2018.
Entertainment Expense Deduction Changes in 2018
The new meals and entertainment tax act does not allow entertainment expense deductions. Before this new tax act came into place on Dec. 31, 2017, you were allowed to deduct 50% of your entertainment expenses.
This means that any entertainment expenses paid or incurred after Dec. 31, 2017 are no longer tax deductible.
Meal Expense Deduction Changes In 2018
The meal expense deduction changed in 2018 as well where the IRS is only allowing businesses to deduct 50% of their meal deductions, vs. 2017, where you could deduct 100% of meals provided to employees.
Entertainment & Meal Expense Deduction Changes Under Tax Reform
(Old rules) 2017 Expenses
(New rules) 2018 Expenses
|Office Picnic or Holiday Party||100% deductible||100% deductible|
|Business Meals with Client||If the tax payer is present 50% deductible (not extravagant or lavish)||If the tax payer is present and business is conducted 50% deductible (not extravagant or lavish)|
|Meals Related To Entertainment||50% deductible||0% Deduction (No deduction if business is not conducted)|
|Transportation to or from Restaurants For Client Business Meals||100% deductible||100% deductible|
|Tickets For Sporting Events||50% deductible of the face value
50% deductible of skybox expenses
100% deductible for charitable sporting event tickets
80% deductible for tickets to an education athletic event
50% deductible for any transportation to or from parking spots at sporting events
|Memberships To A Club||Club dues offer no deduction while 50% deduction is allowed for expenses incurred at any club organized for pleasure, business, recreation or other purposes if related to business||0% Deduction|
|Meals That Are Provided For The Convenience Of The Employer||100% deductible if they are excludable from the employees’ gross income as “de minimis fringe benefits”||50% deductible (0% deduction after 2025)|
|Meals Occasionally Provided To Employees & Meals During Overtime||100% deductible if they are excludable from the employees’ gross income as “de minimis fringe benefits”||50% deductible (0% deduction after 2025)|
|Snacks, Coffee & Water at the Office||100% deductible if they are excludable from the employees’ gross income as “de minimis fringe benefits”||50% deductible (0% deduction after 2025)|
|Meals Provided In Office During Meetings of Directors, Agents, Stockholders or Employees||50% deductible||50% deductible|
|Business Travel Meals||50% deductible||50% deductible|
|Business League Event, Conference or Seminar Meals||50% deductible||50% deductible|
|Meals provided in a Charitable sports Package||100% deductible||50% deductible|
|Meals Provided As Taxable Compensation to Independent Contractor or Employee||100% deductible||100% deductible|
|Meals Expenses Sold to a Customer or Client (or Reimbursed)||100% deductible||100% deductible|
|Free Food Offered To Public||100% deductible||100% deductible|
Meal & Entertainment Expense Documentation
Under the previous law, in order for a business to be able to deduct expenses for meals and entertainment, the expenses must have been directly associated with or related to the active conduct of business or trade, or for the collection or production of income.
Under the new deductible rules, this requirement will essentially remain the same, although in a different form that states that meals expenditures must be deductible. However, this requirement no longer applies to entertainment expenses as those expenses have been repealed altogether. This repeal will also eliminate the deduction for meals if they are entertainment related.
Meals centered around entertainment fall under the purview of expenses when the activity centers around entertainment (In simpler words, just because the expenditure is a meal does not exclude it from the broader entertainment designation). Because these new rules treat entertainment-related meals differently, it may be wise to establish a new information management system or documentation procedure to account for each category separately. Business meals are only deductible if they are not extravagant or lavish, and if the actual taxpayer is present with the client.
For example, it is important to make sure you conduct business with the client to be deductible, and distractions might prevent the business argument (e.g., meal expenses at cocktail lounges, night clubs, country clubs, athletic clubs, vacation, fishing or similar trips
50% Deductible Meal & Entertainment Expenses 2018
The following business expenses are 50% deductible:
- Expenses for meals during business meetings of directors, agents, stockholders, and employees. Partner meetings and office meetings now fall into this category. If there is no business conducted during the meal, it is non-deductible
- Generally speaking, any meals during business travel, if they can be considered personal (not related to the function of the business trip) then a portion of the personal meals will be non-deductible.
- Meals at seminars, conventions, or any other type of meeting, even if the meal cost isn’t separated from the event cost. If the cost is not separated, it must be calculated based per diem rates of that location or reasonableness.
- Meals with other people related to businesses such as vendors, customers, and clients as long as there is some benefit to the business and the taxpayer is present (also not extravagant or lavish)
Meals that were 100% deductible that changes to 50%:
- Meals provided to employees on employer’s premises to more than 1/2 the employees (for the convenience of the employer), and meals provided to employees to enable them to work overtime, weekends, etc. These meals satisfy the de minimis fringe benefits
- Snacks at the office – donuts, bottled water, soft drinks, coffee and other beverages or snacks provided on the employer’s premises
- Meals provided as a package of charitable sports tickets
100% Deductible Meal & Entertainment Expenses 2018
Meals provided for a company holiday party or picnic
Food used as part of a promotional campaign where it is given to the public for free
If the meal that is provided for the independent contractor or employee is included as taxable compensation and included on form 1099 or W-2, the expenses are 100% deductible to the employer.
Meals sold to a customer or client
Read more about how the new tax law affects you.