Meal and Entertainment Expenses
Under the new tax Act, there are stricter limitations on the deductibility of business meals and entertainment expenses. Any entertainment expenses incurred and paid after December 31, 2017 are now considered to be generally nondeductible. One of the exclusions from this new limitation is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees.” This would mean office holiday parties are still deductible, however, entertaining a client is not. A business can no longer deduct as a business expense for entertaining a client: golf, skiing, sporting tickets, etc.
Employer Provided Meals
The deductibility for certain meals have changed as well. Under the new Act, beginning January 1, 2018, the deduction for meals from an on-premise cafeteria or provided for the employer’s convenience is now only 50% deductible. After 2025, the cost of meals provided through an on-premises cafeteria or provided for the employer’s convenience will be completely nondeductible.
Planning and Record Keeping with New Tax Law
It is important for businesses to be aware of these changes and plan their meals and entertainment budgets accordingly. Additionally, it is very important to track these separately in your records for your business tax return and tax planning purposes.
Rules Before and After the New Tax Reform Act
|Old Rules – 2017 Expenses||New Rules – 2018 Expenses|
|Office Holiday Parties||100% deductible||100% deductible|
|Client Meals and Entertainment||Meals – 50% deductible||Meals – 50% deductible|
|Event tickets – 50% deductible for face value of ticket. Anything above face value of ticket is non-deductible||No deduction for entertainment expenses|
|Qualified charitable event tickets – 100% deductible|
|Employee Travel Meals||50% deductible||50% deductible|
|Meals Provided for Convenience
Of Employer or on-premise cafeteria
|100% deductible if excluded from employees’ gross income as de minimis fringe benefits (otherwise 50% deductible)||50% deductible
(nondeductible after 2025)