2018 Tax Reform Impact on Meals & Entertainment

2018 Tax Reform Impact on Meals & Entertainment

The Tax Cut and Jobs Act of 2017 (TCJA) puts stricter limits on what businesses can deduct for meals and entertainment expenses for amounts incurred or paid after December 31, 2017. The Jones & Roth tax team has put together a reference chart as a tool to help you navigate the various changes.

The following table compares the rules before and after the Tax Cuts and Job Act.

Expense Description 2017 Expenses (Prior Law) 2018 Expenses (New Law)
Office holiday parties, picnics, events for employees and customers 100% deductible for portion allocated to employees;

50% deductible for portion allocated to customers

100% deductible for portion allocated to employees;

portion allocated to customers is nondeductible without additional guidance from Congress or Treasury*

Employee meals provided for convenience of employer (ex. meals provided by employer for employees working overtime or meals provided at onsite cafeteria) 100% deductible 50% deductible
(nondeductible after 2025)
Employee meals while traveling away from home overnight 50% deductible 50% deductible
Employee meals for required business meeting
(ex. employer-provided lunch during marketing or education meeting)
50% deductible 50% deductible
Office snacks
(ex. coffee, soft drinks, bottled water, donuts and similar snacks or beverages)
100% deductible 50% deductible (nondeductible after 2025), however, does not appear to be what Congress intended. Technical corrections may provide for 100% deductible.
Items available to the general public (ex. complementary coffee & snacks in lobby area) 100% deductible 100% deductible
Meals expense for attendance of a business league, chamber event, or trade/association meeting 50% deductible 50% deductible
Employees (2 or more) working lunch/dinner mtg. 50% deductible 50% deductible
Entertaining clients, employees, referrals sources, vendors, etc.
(ex. golf scramble, sporting event tickets, theaters, country clubs, and other purely entertainment related charges that are directly related to taxpayer’s business and can be properly substantiated)
50% deductible No deduction for entertainment-related expenses, including meals
Entertainment-related meals 50% deductible No deduction
Client/Prospect Business Meals (ex. business owner treats a potential client to lunch and discusses matters directly related to business between the two) 50% if taxpayer is present and not lavish or extravagant No deduction without additional guidance from Congress or Treasury*
Reimbursed meals and entertainment expenses
(ex. business charges its clients fees plus expenses and provides their clients with detail of the expenses on the invoice sufficient for client to determine deductibility of the expense)
100% deductible provided the taxpayer accounts to such person or business with detail of the expenses on the invoice 100% deductible provided the taxpayer accounts to such person or business with detail of the expenses on the invoice

 

*There has been a lot of discussion regarding the question of whether a business meal with a client, prospect, business associate, or referral sources should be treated as nondeductible entertainment or as deductible business meals under the new law. A strict reading of the new law indicates these types of meals are considered “entertainment” and no longer deductible. Most practitioners believe this is not what Congress intended and are waiting on guidance from Congress or Treasury.