Changes under the sweeping tax overhaul passed in 2017 have affected business expense deductions for meals and entertainment, and the IRS has issued guidance on the changes.
While the 2017 law eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation, it never specified rules for the deductibility of business meals.
According to the IRS, taxpayers can still deduct 50% of the cost of business meals if the taxpayer, or an employee, is present and as long as the food or beverages are not considered lavish or extravagant.
Such meals can be provided to current or potential business customers, clients, consultants and similar contacts.
In addition, any food or beverages that are provided at an event but purchased separately from the event will not be considered entertainment.
Before 2018, businesses could deduct as much as 50% of entertainment expenses that were directly related to the active conduct of a trade or business, or expenses that took place right before or after a bona fide business discussion that was associated with the active conduct of a trade or business.
Until the Treasury and the IRS publish proposed regulations on the deductibility of business meal expenses and the definition of entertainment, taxpayers should rely on the guidance in Notice 2018-76.
The agency also points out that updates on the implementation of the tax law can be found on the Tax Reform page of IRS.gov.