The Tax Cuts and Jobs Act is the most substantial tax law change since 1986. One area that taxpayers will feel a significant impact is with respect to meals and entertainment expenses. Under the old rules, most folks are familiar with a 50% deduction for client meals and expenses of entertaining. Under the new law, the meals are generally treated the same, but entertainment is no longer deductible. These new rules go into effect for expenses paid or incurred after December 31, 2017.

 

Below is a comparison of the various types of meal and entertainment expenses under the old law and the new tax law.

 

* assuming there is a business purposes

 

As was the case with the prior law, expenses for deductible meals must be related to the active conduct of a trade or business. This requirement is still in place. Another requirement that is still in place is that in order for the cost of a meal to be deductible, it must not be lavish or extravagant.

 

Also under the old law, there were stringent record keeping requirements for meals and entertainment deductions. These requirements have not changed as a result of the new tax law. Taxpayers are still required to keep documentation of the amount, time, date, place and purpose of the meal in order to satisfy the documentation requirements.

 

If a meal is closely tied to an entertainment event (e.g., golf outing, football game, etc.), then it is likely not deductible. This is one area of the new tax law that many folks are eagerly awaiting clarification and guidance; where is the IRS going to draw the line between meals and entertainment.

 

Unfortunately, as is the case with virtually everything in the new tax act, there is no detailed guidance from the IRS with respect to any of the new tax law. There are no examples, guidelines, or even FAQ’s. So our thoughts on this topic could be revised whenever more definitive information is provided by the IRS.

 

Jason Sharp, CPA
Shareholder
Tax Department
Phone: 713-667-1947