IRS Releases Additional Guidance on Deductions for Meals and Entertainment
Following changes to the U.S. tax code included in the Tax Cuts and Jobs Act (TCJA), the IRS recently released new guidance pertaining to business expense deductions, specifically those for meals and entertainment expenses.
The TCJA eliminated many deductions, including the deduction for entertainment expenses. As a result, many believed that the write-off for business meals was lost. However, the IRS clarified that despite the change to the entertainment expense deduction, businesses can still deduct 50 percent of meals while entertaining clients and customers, as long as it’s reflected on a separate receipt.
Specifics of the IRS guidance indicate that the 50 percent meal deduction can be taken under the following circumstances:
- The expense is considered “ordinary and necessary” under Section 162(a);
- The expense is not considered “lavish or extravagant;”
- The taxpayer (or a representative, e.g., an employee) is present at the meal;
- The meal is provided to a current or potential business customer, client, consultant, or contact; and
- The deducted items are reflected on a separate receipt from any other entertainment activity.
The IRS is currently seeking comments on their notice and has indicated that they plan to issue proposed regulations after December 2, 2018..As of now, taxpayers can rely on the IRS guidance while they wait for the release of further regulations.
To read the IRS release in full, visit www.irs.gov.