The new tax law passed hastily late last year left more questions than answers. The IRS has been scrambling over the past few months to provide guidance on how the new laws would be interpreted. Meals and Entertainment expenses is one area of concern;  many tax professionals widely assumed that the deduction for both were drastically cut.  IRS Notice 2018-76 was just released to provide guidance on the deductibility of these expenses and provides a bit of relief. 

Here is shortened version of the changes: 

  • Meals and entertainment expenses on the employer’s premises for the benefit of the employer which were formerly eligible for the 100% expense allowance are now subject to the 50% deduction allowance starting in 2018. 
  • Entertainment expenses such as golfing, skiing, tickets to sporting events while meeting with business clients or prospects are no longer deductible. Unless the entertainment is provided via a Company event or to the general public, it’s generally no longer deductible.  It’s interesting to note that most of the remaining allowable entertainment expenses continue to qualify for a 100% deduction. 

So what does this mean?  

Entertainment costs are generally no longer deductible.  Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.  Food and beverages that are provided as part of the total cost of an event where the meal cost is not separately stated on the ticket or invoice are not deductible.  Suggestion: Consider if the entertainment cost qualifies as a marketing and promotion expense that is still fully deductible. 

Recreational expenses for employees and company-wide events held primarily for the benefit of employees other than highly compensated employees are still fully deductible.

Meals provided to employees that were previously considered “de minimis fringe benefits” and previously 100% deductible are now subject to the 50% deduction rule.   Expenses incurred in holding employee, stockholder, etc. business meetings, and meetings of business leagues or the like are subject to the 50% deduction rule.   

Of course,  you would need to have working knowledge of the old rules to apply the changes.  We have prepared a more detailed analysis that is available upon request for those interested in boning up on the new & old rules.