In general, the new tax Act provides for stricter limits on the deductibility of business meals and entertainment expenses. Under the Act entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under the specific exceptions in Code Section 274(e). One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees”. (i.e. office holiday parties are still deductible). Business meals provided for the convenience of the employer are now only 50% deductible whereas before the Act they were fully deductible. Barring further action by Congress, those meals will be nondeductible after 2025.
Tax reform has had a significant impact on the tax deductions you can now claim for business entertainment and meals. The chart below shows you how the Tax Cuts and Jobs Act treats meal and/or entertainment events.
| Amount Deductible for Tax Year 2018 | |||
| Description | 100% | 50% | Zero |
| Meals with clients and prospects | X* | ||
| Entertainment with clients and prospects | X | ||
| Employee meals for the convenience of the employer | X | ||
| Employee meals for required business meeting | X | ||
| Meal served at Chamber of Commerce meeting | X | ||
| Meals while traveling away from home overnight | X | ||
| Year-end party for employees and spouses | X | ||
| Golf outing for all employees and spouses | X | ||
| Year-end party for customers | X | ||
| Meals for the general public at marketing presentation | X | ||
| Team-building recreational event for all employees | X | ||
| Golf, theater, or football game with your best customer | X | ||
* Technically, the TCJA made meals with clients and prospects not deductible. We understand that the tax writers will modify the law to make “so called non-entertainment meals” with clients and prospects deductible. We don’t know when we will see this change but track your meals with clients and prospects as if the tax writers will truly make them deductible.
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