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Archive for the ‘meals’ Category

New Rules For Deducting Meals & Entertainment

Posted by taxguru on April 25, 2018

As I mentioned earlier, the big “Tax Reform” law, aka the Tax Cuts and Jobs Act (TCJA), that was passed and signed into law in late December 2017, was so hastily and sloppily written that it contains several areas that are so vague and contradictory that they have everyone puzzled as to how they should be applied in real life.  One of these is the matter of deducting the costs of business meals and entertainment.  While it will most likely take several years to arrive at a firm and definitive interpretation of the law, we who do reside in the real world don’t have the luxury of waiting that long.  We need to know right now how to advise our clients. 

To that end, the fine folks at TaxCoach have assembled a handy chart comparing the rules for deducting various types of meals and entertainment expenses under the old 2017 tax law versus the new 2018 law.  They shared it with us during today’s weekly online strategy meeting.  Theirs was a PowerPoint file, which I have converted to its basic graphic and text components for this blog post.  The following chart and explanation are the creations of TaxCoach

Click on the chart below for a more legible full size version.

TC-M E(17v18)

Here are some changes you probably won’t like. Like a kitchen food processor, the new law slices, dices, and purees some of the most popular deductions for meal & entertainment expenses. The chart summarizes deductions under the old and new law.

For starters, there’s real speculation that the law may have unintentionally eliminated deductions for the classic “three martini” lunch entirely. Under the old rules, meals with prospects, clients, and referral sources were deductible under the same rules governing entertainment expenses. The new law repeals the umbrella deduction for entertainment expenses , which would appear to include business meals. However, the Senate explanation to their version of the bill, which ultimately made it into law, states that “Taxpayers may still generally deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel).”

So, which is it? Are traditional business meals still deductible or not? Well, we just don’t know. So until we get some guidance, prudence suggests you should continue to document those expenses, including the business purpose of the meal, to protect your deductions if we get clarification on the question. Better to have your ducks in a row and not need them than to need them and not have them!

Transportation expenses to and from business meals are still deductible, as they’re governed by a different section of the code that remains good today.

Unfortunately, there’s no doubt at all that the old “entertainment” deduction is gone. Under the old rules, you could deduct 50% of the cost of any entertainment expenses that took place directly before or after a a substantial, bona fide discussion directly related to the active conduct of your business. Deductions included the face value of tickets to sporting and theatrical events, food and beverages, parking, taxes, and tips. The new law repeals that deduction, regardless of how much business you discuss at the event or what business entity you operate. Now, none of those expenses are deductible – not even transportation to and from the venue.

The new law also tightens rules for deducting the cost of providing food and beverages to your employees under the “convenience of the employer” or “de minimis” fringe benefit rules. The new law cuts those deductions to just 50%, and eliminates them entirely after 2025.

Posted in meals, NewTaxLaws | Comments Off on New Rules For Deducting Meals & Entertainment

Deducting 100% of meals?

Posted by taxguru on April 3, 2008

Q:

Subject: Meals 100% Deductible for Strategic Planning Meeting?

Kerry,

I am a sole practitioner and I came across this article on CNN Money.

Linda Rey (pictured at right, with sister Laura and father Frank) is co-owner of Rey Insurance, a broker based in Sleepy Hollow, N.Y. She and her partners (who also happen to be family members) hold a monthly dinner at a restaurant, which they treat as an offsite strategic planning meeting (100% deductible) rather than a business meal with a client (50%). Even with coffee and Dunkin’ Donuts for the Friday morning meeting, she always takes the full 100% deduction, while many companies wrongly file this under meals and take half. “I pay careful attention,” says Rey. “Otherwise you end up giving a lot of money away.”

I have never heard of deducting meals at 100% for an off-site strategic planning meeting. I researched this issue and could not find support their comment. I can’t see where this type of meal falls within the 100% allowed M&E categories. Everything I find says 50% disallowed for this type of expense. Are you familiar with deducting meals at 100% for an off-site strategic planning meeting (and morning donuts), or is this just another case of the media giving false information which makes us explain why it is wrong to our clients.

Thanks,

A:

I’ve heard of people trying this; but I can’t agree with the logic or stand behind this idea.

As we know, there is a lot of the honor system in the tax game in regard to how we post expenses. Calling something a “Meeting Expense” effectively hides it from the 50% limit that business meals have.

I browsed the online QuickFinder and the printed and WebCD TaxBooks for any mention of 100% deduction for meals at strategic planning meetings and came up empty.

For example, QuickFinder online had this for a similar situation:

Home Meetings
Direct sellers who hold business meetings in their homes can deduct expenses for the meetings as entertainment expenses and expenses related to the business use of their home only when they meet certain tests.

The expenses of entertaining business associates in the direct seller’s home are deductible as entertainment expenses if they meet the rules discussed under Meals and Entertainment. The expenses of maintaining the direct seller’s home as a place of business are deductible if he or she meet the tests discussed under Business Use of the Home.

Example: Barbara and Bill hold bi-weekly meetings in their home for the direct sellers who work under them. They discuss selling techniques, solve business problems and listen to presentations by company representatives. Because the meetings are for business, Barbara and Bill can deduct 50% of the cost of the food and beverages they provide. See Deduction Limit. They keep a copy of their grocery receipts for these refreshments, and record the date, time and business nature of each meeting. Be­cause the meetings are held in their living room rather than in a special area set aside only for business, they cannot deduct any of their home expenses for the meetings.

I’ve had cases where meals were one part of a business related meeting that had a single admission price. I have posted those to 100% deductible Meetings expense. However, where the meeting is at a restaurant and the full amount being paid out is for food, I have to believe that the deduction would be limited to the standard 50%.

It would be interesting to hear what other tax practitioners have to say about this.

I feel that those people bragging about deducting 100% of their meals in that article had better prepare themselves for an IRS audit which will also delve into other creative deductions they may be claiming.

Thanks for writing and good luck with the rest of this Tax Season.

Kerry Kerstetter

Posted in comix, meals | Comments Off on Deducting 100% of meals?