Tax Reform’s Impact on Meals and Entertainment Rules
February 23, 2018
By Tim Schuster
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.