The Internal Revenue Service (IRS) issued guidance on Wednesday to reaffirm that taxpayers can still deduct 50% of their food and beverage expenditures for business meals related to operations.
The announcement was made to alleviate confusion on the matter created by changes introduced in the Tax Cuts and Jobs Act, which was signed into law in late 2017. Specifically, Sec. 274 disallows tax deductions for entertainment and recreation; however, there was nothing to address whether business meals could be deducted.
Under this interim guidance, you can continue to deduct 50% of expenses for business meals under the following conditions:
- The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
- The expense is not lavish or extravagant under the circumstances;
- The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
- In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.
The IRS has also included three examples to explain when business meals can or cannot be deducted on a return. You can read the full guidance here. And don’t forget to contact your CPA if you have any questions about business meals or other business-related expenditures.
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