Are You Correctly Tracking Business Deductions for Meals and Entertainment?

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Businesses of all sizes and across all industries need to be aware that the deductions for 2018 meals and entertainment have changed following tax reform.

In general, the old provisions were 50 percent deductible on the taxpayer’s federal return for meals and entertainment if they were business-related. Miscellaneous food and beverages provided to employees (parties, picnics, at the business) were fully deductible. But the new rules are more stringent. Companies will need to report differently, and ensure that meal and entertainment costs are being tracked separately.

In preparing for proper tax reporting for 2018, it’s important to start new tracking methods in accordance with the new rules now, rather than later. A comprehensive chart is provided below to summarize proper treatment for many types of meals and entertainment expenditures under the law applicable both before and after the act.

 

 

 

2017 Expense 2018 Expense
Office Holiday Party or Picnic 100% deductible 100% deductible
Client Business Meals 50% deductible if taxpayer is present, and not lavish or extravagant 50% deductible if business is conducted, taxpayer is present, and not lavish or extravagant
Entertainment-related Meals 50% deductible No deduction (e.g, meals incurred when no business is conducted, potentially at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips)
Transportation to/from Restaurant for Client Business Meal 100% deductible 100% deductible
Sporting Event Tickets 50% deductible for face value of ticket (anything above face value is non-deductible)

 

50% deductible for skybox expenses to the extent of non-luxury seat ticket face value in such box

 

100% deductible for charitable sports events

 

Contributions for the right to purchase tickets to an educational institution’s athletic events 80% deductible

 

50% for transportation to/from and parking at sporting events

No deduction
Club Memberships No deduction for club dues; however, 50% deduction for expenses incurred at a club organized for business, pleasure, recreation, or other social purposes if related to an active trade or business No deduction
Meals Provided for the Convenience of Employer 100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §119(a); otherwise 50% deductible 50% deductible (nondeductible after 2025)
Meals Provided to Employees Occasionally and Overtime Employee Meals 100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §132(e)(1); otherwise 50% deductible 50% deductible (nondeductible after 2025)
Water, Coffee, and Snacks at the Office 100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits under §132(e)(1); otherwise 50% deductible 50% deductible (nondeductible after 2025)
Meals in Office During Meetings of Employees, Stockholders, Agents, or Directors 50% deductible 50% deductible
Meals During Business Travel 50% deductible 50% deductible
Meals included in Charitable Sports Package 100% deductible 50% deductible
Meals Included as Taxable Compensation to Employee or Independent Contractor 100% Deductible 100% Deductible
Meals Expenses Sold to a Client or Customer (or Reimbursed) 100% Deductible 100% Deductible
Food Offered to the Public for Free (e.g., at a Seminar, Holiday Open House, etc. 100% Deductible 100% Deductible

To ensure your business is in compliance with these new rules, contact a K·Coe Isom advisor for guidance.

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