Changes to Meals and Entertainment Expense Deductions

The Tax Cuts and Jobs Act has made changes to the meals and entertainment deductions.

Effective January 1, 2018, Code Section 274 has been modified to disallow the business deduction for entertainment expenses even if directly related to or associated with the conduct of business. The 50% deduction limit that previously applied to meals and entertainment expenses now applies only to meal expenses. Thus, all forms of business entertainment, including but not limited to golf outings, fishing, sporting events, and theater events, are likely to be entirely nondeductible going forward even if substantial and bona fide discussions were associated with the activity.

Additionally, the business deduction for de minimis meals under Code Section 132(e)(1) and meals provided for the convenience of the employer at or near the employer’s business premises is limited to a 50% deduction (in the past was 100%).

It will be necessary to establish general ledger accounts that are sufficient in identifying entertainment expenses where the business deduction is disallowed and those for meals that are subject to the 50% deduction limit.  For example, separate general ledger accounts are needed for (1) a sporting event for a customer where no business deduction is allowed and (2) meal expenses incurred for a business meeting or as a travel expense where a 50% deduction limit applies. 

 

Westbrook CPA