Congress created much confusion with the passage of the Tax Cuts and Jobs Act (TCJA) with regards to the deductibility of business meals. However, earlier this month, the IRS issued guidance clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction made by TCJA.
The rules passed by Congress will only generally apply to entertainment, such as sporting events and the like. The meals associated with such activities will remain 50% deductible provided they are charged separately.
Under the interim guidance, taxpayers may continue to deduct 50% of an otherwise allowable business meal expense if:
- The expense is an ordinary and necessary business expense paid or incurred during the tax year when 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 when the food or beverages are furnished;
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
- For food and beverages provided during or at an entertainment activity, they 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.
These are the same rules that have been in effect for some time. So,basically, the rules around business meals have not been significantly effected by the new law.