The Tax Cuts and Jobs Act brought about many changes related to the deductibility of meals and entertainment expenses. Generally, business entertainment expenses (not including food and beverage expenses) are no longer deductible for amounts paid or incurred after Dec. 31, 2017. The term entertainment includes activities that are generally considered to constitute entertainment, amusement, or recreation, such as entertaining at a country club or athletic event. If you plan to serve food or beverages at your meeting, those expenses may be deductible, but subject to limitations, and they must satisfy business connection and substantiation requirements.
The Act also disallows deductions for expenses associated with providing any qualified transportation fringe to employees, and except for ensuring employee safety, any expense incurred for providing transportation (or any payment or reimbursement) for commuting between the employee’s residence and place of employment.
This also includes parking paid for by the employer that is not included as compensation to the employee.
As stated above, you may be able to deduct expenses for business meals. Business meal expenses may be deductible even if they are paid or incurred during an entertainment activity, such as purchasing a hot dog for a potential client during a baseball game, provided certain requirements are met. Under IRS guidance, meal expenses will generally be deductible if:
(i) they are ordinary and necessary in carrying on your trade or business,
(ii) they are not lavish or extravagant
(iii) you are present when the meal is furnished
(iv) the meal is be provided to a current or potential business contact,
(v) in the case of the meal being provided during an entertainment activity, the expense of the meal is on a separate bill, invoice, or receipt.
Even if those requirements are satisfied, the meal will likely be subject to the 50% limitation, meaning that you cannot deduct more than 50% of the cost of business meals.
With the changes in the tax law, now may be the perfect time to revisit your employee expense reimbursement policies. The proper documentation and classification in your income statement could have a significant effect on your annual taxable income.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club