Meal and Entertainment Expenses as changed by The Tax Cuts and Jobs Act (TCJA)July 20, 2018
By: Peter Pfister, CPA
With the signing of the TCJA on December 22, 2017 many changes were made to the deductibility of meal and entertainment expenses beginning in 2018. These changes may have a major impact on individual and business spending habits. Here are some answers based on a question and answer format.
Q: I take clients out for a meal to discuss business, is that still a business deduction?
A: Yes, however your deduction is still limited to 50% of the cost of the meal. In addition, the meal must not be “lavish or extravagant” and you must be in attendance.
Q: What is the status of golf fees, amusement and other recreational expenses?
A: Beginning in 2018, these types of expenses are no longer deductible. Examples include the costs for sporting event tickets, stadium license fees, theatre tickets, fishing trips and golf fees.
Q: So, If I take a client to lunch and then we play golf (and review business issues), the meal portion is 50% deductible and the golf fees are 100% non-deductible?
A: Yes, correct.
Q: As an employer, when I reimburse employees for allowable meal and entertainment expenses what is the tax treatment for me as the employer?
A: First, let’s assume the expense is business allowable. Next, the reimbursement is treated as a non-taxable reimbursement to the employee. However, as the employer, you treat the expense as it applies under the law, meaning, if it’s a business meal it’s only 50% deductible. If it’s for sporting event tickets, it’s 100% non-deductible.
Q: What about expenses reimbursed that don’t qualify as business related?
A: In this case, you’d have to include the reimbursement as part of the employee’s compensation (include in the W2), which would allow the employer the full deduction for the expense.
Q: I sometimes provide on-site meals and special food treats for employees and have a separate kitchen, which includes a refrigerator, table, coffeemaker and water cooler, are these types of expenses still 100% deductible?
A: Unfortunately, no. Prior to 2018 these expenses were 100% deductible as they were considered a convenience to the employer and a de minimis fringe benefit to the employee. Beginning in 2018, it has now changed. These types of expenses will only be 50% deductible through 2025. Beginning in 2026, these types of expenses will be 100% non-deductible. Examples would include meals provided to employees for working late, and meals provided during the work day. It would also seem to cover the costs of the “eating facility” which would include the coffee and other related expenses.
Q: Are any of these employer type of meal costs excluded under the new law?
A: Luckily yes. Meals provided at the annual company holiday party or summer outing are still 100% deductible. In addition, meals provided for company training events such as continuing professional education would be 100% deductible.
Q: Some of us are members of business associations such as the chamber of commerce, what is the status of these meal expenses?
A: The law hasn’t changed as the meal expense is still 50% deductible. Dues, however, are 100% deductible.
Q: How are expenses treated for charity events such as golf outings and annual dinners which at times involves inviting clients to attend?
A: The charity golf outing for the golf portion is non-deductible as the payment applies to an entertainment facility which by law is non-deductible. A portion could be considered advertising if a form of sponsorship is involved as part of the payment. For an annual dinner, the meal cost would be 50% deductible, the ticket cost would be the charitable contribution. The charity would have to provide that information. The same rules would apply if only company employees attended the annual dinner.
Q: These rule changes seem to make record keeping more cumbersome?
A: Yes, it does seem to, however, it has been suggested these types of expenses be segregated in your company financial activity for easy reference.
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