Understanding meals and entertainment deductions under new tax law

New regulations regarding deductions on meals and entertainment


The Tax Cuts and Jobs Act of 2017, enacted in December 2017, touched so many pieces of our tax law, the Internal Revenue Service is still issuing guidance on how the reforms will impact individuals. The 400-page bill was the biggest tax overhaul in two decades and its impacts on individual taxpayers are wide-ranging. This is the fifth part of a series in how the tax reform bill can affect you with a focus on expense deductions for meals and entertainment.

The Internal Revenue Service issued new guidance Oct. 3 on business expense deductions for meals and entertainment following law changes in the Tax Cuts and Jobs Act. The reforms eliminated deductions for any expenses related to activities generally considered entertainment, amusement or recreation.

Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Prior to the reforms being enacted, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business. Now entertainment expenses are no longer deductible.

The term “entertainment” means any activity that is generally considered to constitute entertainment, amusement, or recreation. This includes nightclubs, cocktail lounges, theaters, country clubs, golf and athletic clubs and sporting events, as well as going on hunting, fishing, vacation, and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.

“Entertainment” does not include “per diem” payments or accommodations meant to provide for the food and shelter of an employee on a business-related excursion.

The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. If you have questions, read this IRS article or check for updates on the implementation of the tax reforms on the Tax Reform page of IRS.gov. As the IRS implements this major tax legislation, the IRS will issue more updates and resources check with your local tax preparer if you have any questions.

For more information on other tax deductions, contact our team at DVF and we’ll help guide you through your tax picture.