Additional IRS Guidance for
Business Meals & Entertainment Expense
On October 3, 2018, the Internal Revenue Service issued Notice 2018-76, which provided guidance and further clarification on the business expense deduction for meals and entertainment. The Tax Cuts and Jobs Act (TCJA) eliminated deductions for expenses from activities considered entertainment, amusement, or recreation. However, the IRS has stated in their notice that taxpayers can still deduct 50 percent of the cost of business meals if the following conditions are met:

  • The expense is ordinary and necessary;
  • The taxpayer (or an employee) is present at the meal;
  • The meal is not considered to be lavish or extravagant;
  • The meal is provided to a current or potential business client; and
  • When entertainment is provided with the meal, the cost of the food and beverage is separately stated from the cost of the entertainment on the invoice.

Additionally, the TCJA repealed the exception that provided a 100 percent deduction for food and beverages excludable from employee income as a de minimis fringe benefit. These expenses were previously fully deductible as a convenience to employers in order to prevent cumbersome accounting of small costs. These expenses are now subject to the 50 percent limitation on deducting meals. The IRS Notice did state that they intend to publish regulations further clarifying the treatment of food and beverage expenses; however, it is unclear as to whether or not the IRS will issue rules of convenience in future guidance.
Track Expenses
While most food and beverage expenses are subject to a 50 percent deduction limitation, a number of expenses are still fully deductible. Some fully deductible expenses include reimbursed expenses, expenses for social, recreational or similar activities that are primarily for the benefit of employees, and expenses treated as compensation.

Because of the changes to the deductibility of meals and entertainment, it is very important to track fully deductible expenses, 50 percent deductible expenses, and nondeductible expenses separately, in order to maximize your tax benefit when filing your tax return.
For more information on the deductibility of meals and entertainment, please contact your trusted advisor at Arnett Carbis Toothman LLP.