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Back Office Support & Business Advice

Is it a Meal or is it Entertainment? That is a good tax question.

Matt Collins, CPA, CFP

July 16, 2018

Under the Tax Cuts and Jobs Act (TCJA) business entertainment expenses incurred after December 31, 2017, are NOT deductible. Previously, business entertainment was eligible for a 50% tax deduction.

The first thing you need to do! Update your accounting system so that your books are set up with two separate expense accounts. One for Entertainment and a second separate account for Meals. This way you will be able to track business Meals which are still 50% tax deductible under the TCJA.

The second thing to do! Until further guidance is provided by the IRS on when a meal is not a business meal but rather a form of entertainment, do your best by taking a reasonable approach for supporting business meals. For example, if a meal expense is ordinary and necessary (not lavish or extravagant) for your line of business PLUS the meal is directly associated with a bona fide business discussion, for now, I think you have a meal expense tax deduction. On the other hand, if you are entertaining a customer, for example, at a sporting event and you buy food & beverages, most likely the entire cost is going to be a non-deductible entertainment expense.

Until the IRS issues more guidance on this issue, probably best to take a reasonable approach to classify meals and entertainment expenses. If a meal is predominately part of an entertainment event or venue, then most likely it is a non-deductible entertainment expense. Keep in mind that it appears that the intent of Congress was to target business entertainment and eliminate the tax savings subsidy provided to businesses for spending on entertainment. It does not appear that it was the intent of Congress to limit deductions for legitimate business meals beyond the 50% limit still in effect under TCJA.

   

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