Tax Cuts and Jobs Act: Meals & Entertainment
There has been a great deal of information circulating recently about the Tax Cuts and Jobs Act. We aim to provide you with access to knowledge that will ensure you feel confident about these changes and how they may affect you or your business.
As we indicated, this article will be the first of a three-part series addressing the new tax law. To begin, there have been some important shifts in business deductions for meals and entertainment.
2017 Meals & Entertainment
Prior to the new tax law, meals and entertainment charges related to business could typically be deducted by 50%. Deductible meal and entertainment expenses under this category included meals consumed while traveling for business, entertaining customers for business purposes, and attending a conference, business lunch or meeting.
There were also expenses that could be 100% deductible if the meals were provided to the employee as a means of convenience for the employer. This includes providing an on-site cafeteria to minimize lunch breaks or make up for a lack of dining options near the office. A meeting held on-site during lunch hours was also 100% deductible.
Under the Tax Cuts and Jobs Act, signed into law on December 22, 2017, many of the expenses that were once 50% deductible have since been eliminated. However, there have been significant differences in interpretations of this new law by experts, Currently what we know to be true is that entertainment expenses intended for current or potential clients, such as sporting events or a round of golf, are no longer deductible. Still unclear is whether or not meal expenses for current or potential clients will fall under the same category as entertainment. We are waiting for more clarification from the IRS on this subject, which we expect to be issued in 2018.
Additionally, expenses for employee meals at work have been reduced to a 50% deduction. Any charges made for these purposes between January 1, 2018 and December 31, 2025 will continue to be 50% deductible. Following December 31, 2025 they will not be deductible.
How to Record Meals and Entertainment in Your Books
In order for us to make the proper judgement when preparing your taxes until more clarification is given, we ask that you create and use the following accounts in your books for meals and entertainment expenses as of January 1, 2018:
- Entertainment: includes golfing, skiing, sporting events, etc. (non-deductible)
- Meals-travel: Any meal for business travel outside of the 50-mile geographic area of your business (deductible at 50%)
- Meals-employer convenience: Meals for employees located on business premises (deductible at 50%)
- Meals-other: (waiting for IRS clarification on deductibility)
- Holiday, summer parties: All costs for such parties for staff including meals, supplies, site charges, etc. (deductible at 100%)
If you have any unanswered questions regarding this plan and how it impacts you, please call us to schedule an appointment for after April 17.