The business meal deduction and your business
The IRS issued interim guidance yesterday on the business meal deductibility under the Tax Cuts and Jobs Act (TCJA) clarifying that taxpayers can deduct 50 percent of an otherwise allowable business meal expense if:
- The expense is ordinary and necessary and paid or incurred during the taxable year in carrying out a trade or business,
- The expense is not lavish or extravagant under the circumstances,
- Taxpayer or an employee is present at the furnishing of the food and beverage,
- The food and beverage is provided to a current or potential business customer or client, consultant or similar business associate, and
- The food and beverage is purchased separately from entertainment.
The Treasury Department and the IRS intend to issue proposed regulations under Sec 274, however, until the regulations are issued, taxpayers can rely on this interim guidance.
This means that taxpayers are able to deduct the cost of food and beverage if they meet the above requirements. If the meal is part of entertainment such as a baseball game, taxpayers must make sure to pay for the entertainment separately. Therefore, the baseball ticket is not deductible but the meal during the game is to the extent of 50 percent. In cases where the food is included with the ticket to the game, the food would only be deductible if separately stated on the ticket or invoice. The rules of Sec 274 preclude venues from inflating the food and beverage price to circumvent the disallowance rule.
Facts you need to know
Documentation continues to be a key factor. Taxpayers should consider the following:
- Changing their chart of accounts to separate meals from entertainment.
- Requiring employees to submit receipts with documentation of who they were with and what business was discussed.
- Require venues to separately charge for food and beverage on invoices.
The rules under TCJA are complex. Ciuni & Panichi, Inc. tax professionals have to been helping businesses stay in compliance with the least liability for the past 45 years. If you have questions about this year’s tax regulations or need help with your return, contact Tony Constantine, CPA, 216-831-7171 or by email here.
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