Even though the IRS allows less deductions for those Entertainment and Meal Expenses!
The Tax Cuts and Jobs Act (TCJA) changed what was allowed for entertainment and meals expenses. Prior to the TCJA, businesses could generally deduct 50% of business related meal and entertainment expenses. As of January 1, 2018, many of these rules have changed.
Effective for amounts paid or incurred after December 31, 2017, business related meals were still 50% deductible but most entertainment expenses were disallowed. Nondeductible items include tickets for sporting events, fees for stadium and arena seating rights, private boxes at sporting events, golf club dues, company golf outings for customers, hunting, fishing and vacation trips, theater tickets and so on.
This raised the question of whether food and drink expenses incurred while entertaining would still be deductible. Fortunately, the IRS issued a notice that provides transitional guidance until final regulations are released.
The IRS says that a 50% deduction will still be allowed for entertainment related meals if the following requirements are met:
- The expense is ordinary and necessary business expense paid or incurred in taxable year;
- The expense is not lavish or extravagant under the circumstances;
- The taxpayer or an employee of the taxpayer is present at the furnishing of the food or beverages;
- The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact;
- If provided during an entertainment activity, the food and drinks are purchased separately from the entertainment or the cost of the food and drinks is stated separately from the cost of the entertainment. The entertainment disallowance rule may not be circumvented through inflating the amount charged for the food and drinks; and
- Business must be discussed either immediately before, after or during the event.
And, of course, as always you must document time, place, attendees and business purpose.
All of the rules above are business as usual except for #5 stating that food and drinks must be shown separately on your bill to be deductible.
In summary, when you are entertaining customers, be sure to have the bill show the food and drinks expense separately so that you will get at least a 50% deduction for those amounts which should make your eating and drinking more merry!
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen Hurst Clark Smith (MHCS) celebrates 70 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and financial planning expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHCS is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHCS feels is vital in today’s business environment.