Meal Deductions and Entertainment

Many businesses had become accustomed to taking the entertainment and meal deductions that were afforded in the past; however, as many of you are aware these deductions have been reduced if not eliminated. The good news is the IRS has shed some light on deductions that may be taken for both.

The current guidance provides that 50 percent of the cost of food and beverages provided during or at entertainment events is deductible if purchased separately from the entertainment cost. It is stated this way because the TCJA eliminated deductions for entertainment, amusement, and recreation activities. Further guidance dictates that 50 percent of food and beverage expenses associated with operating a trade or business are deductible. However, they must meet these requirements:

• The expense must be ordinary and necessary and paid in carrying on a trade or business;

• The expense may not be lavish or extravagant;

• The taxpayer or an employee must be present when the food or beverages are furnished; and

• Food and beverages must be provided to a current or potential business customer, client, consultant, or similar business contact.

These stipulations are important when determining whether or not a deduction can be taken. The taxpayers can do themselves a favor when planning potential meetings with clients or prospects by being sure to follow these guidelines to allow the deduction. If you have questions contact us at the Center for Financial, Legal & Tax Planning, Inc.