The Tax Cuts and Jobs Act (TCJA) has had a significant impact on the tax deductions that can now be claimed for business entertainment and meals. Following is a wrap-up of the legislation:
Meals and entertainment – 0% deductible
- All entertainment, including admission fees, tickets, and food and beverage unless the food and beverage is separately stated from the cost of the entertainment on one or more bills, invoices, or receipts (See section titled Meals – 50% deductible below) or it meets one of the exceptions under the section titled, “Meals and entertainment – 100% deductible.”
Meals – 50% deductible
- Business meals: meals with a current or potential business customer, client, consultant, or similar business contact;
- Employee travel meals: Meals incurred by an employee or self-employed individual while traveling away from home if their duties require them to be away from the general area of their tax home substantially longer than an ordinary day’s work, and they need to sleep or rest to meet the demands of their work while away from home while out of town;
- Meals for employees, stockholder business meetings: meals directly related to business meetings of employees, stockholders, agents or directors;
- Meals for meetings of business leagues: meals directly related and necessary for attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade that are exempt from taxation under section 501(a).
Meals for convenience of employer – 50% deductible
This is a separate account because these become 0% deductible in 2025 and this prevents having to change accounting and expense reporting systems in the future.
- Meals served to employees who are required to staff their positions during breakfast, lunch, and/or dinner times; meals served to employees at in-office cafeterias;
- Food and meal costs for employees who are required to live on premises for the convenience of the employer.
Meals and entertainment – 100% deductible
- Expenses treated as compensation: meals, entertainment, amusement and recreational expenses treated as compensation and included as wages for income tax withholding purposes;
- Reimbursed expenses: Expenses paid or incurred by the taxpayer, in connection with services performed for another person or business, under a reimbursement or other expense allowance arrangement with the person or business, if the taxpayer accounts to such person or business by providing a breakdown of the expenses;
- Recreational, etc., expenses for employees: expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than highly compensated employees);
- Items available to public: expenses for goods, services, and facilities you or your business make available to the general public;
- Entertainment sold to customers: expenses for entertainment goods, services and facilities sold to customers;
- Expenses includible in income of persons who are not employees: expenses paid on behalf of nonemployees that are includible in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award;
- De minimis fringe benefit food and beverage: food and beverage, the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable.Potentially only 50% deductible; however, it appears not to be what Congress intended. Technical corrections may provide for 100% deductibility.