Additional Tax Guidance Provided Related to Business Meals & Entertainment Deduction

Golf Tickets and Nachos: Only One Is 50 Percent Deductible Now

On Oct. 3, 2018, the IRS issued Notice 2018-76, which clarified changes to the meals and entertainment deduction. This notice provides transitional guidance to understand changes enacted by the Tax Cuts and Jobs Act (P.L. 115-97, or TCJA), and states that proposed regulations are expected in the future.

Pre-TCJA, meals were 50 percent deductible, and any entertainment expenses directly related to the active conduct of taxpayer’s business were also 50 percent deductible. After the passage of the TCJA, entertainment expenses became fully disallowed.

Notice 2018-76 provides favorable guidance for treatment of meals provided during an entertainment activity. The IRS confirmed that meals are 50 percent deductible, subject to the following requirements:

  • Expense is ordinary and necessary and paid or incurred in the tax year
  • Expense is not lavish or extravagant
  • The taxpayer is present at the event where the meal expense is incurred
  • Expense is business-related, and food or drink is provided to business contact or prospect and
  • Meal expense must be separately stated from any entertainment expense

Taxpayers should be mindful of the criteria listed above and ensure that any food or beverage be separately purchased or separately stated on an invoice or receipt in order to take advantage of the 50 percent deductibility.

Please take time to become familiar with this new guidance. Contact your tax advisor or a member of our DHG Financial Services practice for more information.

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