If you own your own business, you should be familiar with meals & entertainment deduction. This is the IRS rule that has previously allowed business owners to deduct part or all of their client meals, staff dinners, client golf outings, etc. Under the 2018 Tax Cuts & Jobs Act, this deduction will see a major overhaul.
Let's start with what stays the same. 100% of your staff holiday parties is still deductible. 50% of your client meals are deductible. The definition of business meal remains the same in that it must be:
- An ordinary and necessary business expense
- Cannot be lavish or extravagant
- Must have the taxpayer or an employee of the taxpayer present
- Must be provided to a current or potential business customer, client, consultant or similar business contact.
Let's look at what has changed. The primary purpose of this change is to exclude entertainment expenses from being deductible. This means that green fees, sporting event tickets and the like are no longer tax deductible business expenses. It's important to keep in mind that food and meals associated with such outings are still deductible, as long as they are seperated out on the invoice or bill.
The other significant change to this deduction is the decreased deductibility for meals provided to staff for the convenience of the employer. In the past, such meals have been 100% deductible. That provision is gone, so these meals are going to fall into the 50% as well. As stated above, the only meal-related deduction that is still 100% deductible is the expense for holiday parties.
It's important to add this final note, that we are still waiting on guidance and clarification on parts of this new law in addition to many of the other new rulings under the Tax Cuts & Jobs Act.