With apologies to William Shakespeare, a big tax question vexing many business owners these days is not, “To be or not to be?” but, rather, “Meals – deductible or not deductible?” Like many initial responses that come from tax advisors from whom guidance is sought, the answer is, “Well … it depends.” Fortunately, many meals paid for by businesses continue to remain deductible, so all is not lost. Businesses should not despair, as tax results should not be as painful as Hamlet’s tragic outcome.
The Tax Cuts and Jobs Act (the “Act”) made a number of significant changes to federal tax law (click here to see our thoughts on the Act). And while many businesses should see a reduction in taxes due to the corporate rate reductions and the qualified business income tax deduction, other provisions established by the Act reduced some of those tax savings benefits. One causing much consternation is the proviso that repealed the prior law’s “exception to the deduction disallowance for entertainment, amusement or recreation” (as described in the Conference Report to Accompany the Tax Cuts and Jobs Act) and the impact it may have on deducting food and beverage expenses as business meals.
While most entertainment-related expenses are now nondeductible, the good news is that the same Conference Committee said taxpayers, “May still generally deduct 50 percent of the food and beverage expenses associated with operating their trade or business.” Further, many of the specific provisions within the Internal Revenue Code dealing with food, beverages and meals were not affected by the Act and remain unchanged. Some examples of expenses still partially or fully deductible (ranging from 100% deductible to 50% deductible) include:
Food and beverages furnished on business premises primarily for employees;
Food and beverages furnished at annual employee picnics or holiday parties;
Business meals provided at employee, stockholder or business meetings;
Business meals for attendance at meetings or conventions of organizations such as business leagues and chambers of commerce;
Meals consumed by employees while traveling;
Meals required by federal law to be provided to crew members of certain commercial vessels;
Meals provided to over the road truck drivers; and
Meals that are de minimis fringe benefits.
The above is not a comprehensive list. Taxpayers should address what types of food and beverage expenses – and possibly some entertainment expenses – still qualify for a deduction, and how they’re going to track those expenses in accounting systems.
We will continue to monitor the tax changes and provide our insight into their application to help you optimize your own unique tax situation. Please contact your Schneider Downs tax representative for additional information regarding the above and/or for any other tax issues you may be facing. For questions on the new tax laws and entertainment-related expenses, contact us.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.