Tax Reform’s Impact on Meals and Entertainment Rules

Meals and entertainment deductions have changed drastically under the 2017 Tax Reform and Jobs Act compared to the prior rules. In tax years prior to 2018, meals provided at the convenience of the employer along with holiday parties were deductible up to 100% of expenses. Expenses while entertaining clients (e.g., sporting events or other functions) were allowed a deduction of 50% of the face value of the tickets. All meals with clients for business and entertainment purposes were deductible up to 50% of expenses.

Only a few rules remain unchanged from the old tax law. Starting in tax year 2018, employers are still allowed a deduction up to 100% of holiday parties. Client entertainment expenses are no longer deductible; however, meals purchased while discussing business with clients are still 50% deductible. Meals provided by employers are now only deductible up to 50%.

Going forward, the best way to handle these expenses is to establish separate general ledger accounts to distinguish between the different types of meals and/or entertainment being provided. As always, it is best to consult with your business advisor as to the best way to set up your accounts.

  2018 (Tax Cuts and Jobs Act) Rules Old Tax Rules
Meals Provided as Convenience from Employer 50% deduction 100% deducible (Needed to be excluded from employee' gross income as a fringe benefit).
Client Business Meals 50% deduction 50% deduction
Entertaining Clients No deduction for entertainment 50% deduction up to face value of tickets
Meals when Traveling 50% deduction 50% deduction
Office Holiday Parties 100% deduction 100% deduction

This content is subject to revision and modification based on future technical guidance or interpretation from the Internal Revenue Service or other authoritative bodies.  Please consult with your tax professional before you reach your final conclusions.

Mr. Schuster is a Manager providing tax compliance services to individual filers, as well as assistance on tax returns for companies in the manufacturing and real estate industries.

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