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IRS Meals and Entertainment Expense Deduction Changes In 2018

IRS Meals and Entertainment Expense Deduction Changes In 2018

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 changes to the expense deductions of 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

Event

(Old rules) 2017 Expenses

(New rules) 2018 Expenses

Office Picnic or Holiday Party 100% deductible 100% deductible
Business Meals with Client If tax payer is present 50% deductible (not extravagant or lavish) If 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% deductble of skybox expenses

100% deductible for charitable sporting event tickets

80% deductible for tickets to an education atletic event

50% deductible for any transportation to or from parking spots at sporting events

0% Deduction

0% Deduction

0% Deduction

0% Deduction

0% Deduction

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 puposes if related to business 0% Deduction
Meals That Are Provided For The Convenience Of The Employer 100% deductible if they are excludible the an employees’ grose 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 excludible the an employees’ grose income as “de minimis fringe benefits” 50% deductible (0% deduction after 2025)
Snacks, Coffee & Water at the Office 100% deductible if they are excludible the an employees’ grose 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, Coference or Seminar Meals 50% deductible 50% deductible
Meals provded 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 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 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 tax payer 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 premisis 
  • 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 is 100% deductible to the employer.

Meals sold to a customer or client

Read more about how the new tax law affects you.

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