From our CPAAI member firm H2R CPAs in Pittsburgh, “New Tax Rules for Meals and Entertainment”. The article provides a summary of the new rules regarding meals and entertainment tax deductions, signed into law with the Tax Cuts and Jobs Act of 2017.
by Nate DeFilippi, CPA, MBA
H2R CPA is pleased to provide a summary of the new rules regarding meals and entertainment tax deductions, signed into law with the Tax Cuts and Jobs Act of 2017. We recommend that businesses update general ledgers in accordance with these changes to plan for the 2018 tax year.
In general, the Act provides for stricter limits on the deductibility of business meals and entertainment expenses. Under the Act, entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under specific exceptions. The primary exception includes employee-related events, including office holiday parties and summer picnics, which are still 100% deductible.
Business meals with clients that have substantial business discussion are still 50% deductible. Business meals provided for the convenience of the employer are now limited to 50% deductible whereas they qualified for full 100% deductibility before the new tax law. Barring further legislation, such business meals will be 100% non-deductible after 2025.
The following is a comparison of past and present law.
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MEALS / ENTERTAINMENT
TAX LAW COMPARISON |
2017
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2018
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Entertainment (including event tickets, amusement or recreation activities; does not include qualified meals expenses)
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50% Deductible
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Non-Deductible (for expenses incurred or paid after 12/31/17)
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Employee-Related Events (i.e., office holiday parties / summer picnics)
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100% Deductible
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100% Deductible
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Business Meals (i.e., employee travel meals and client meals with substantial business discussion)
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50% Deductible
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50% Deductible
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Business-Related Meetings (i.e., employee or shareholder meetings)
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100% Deductible
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100% Deductible
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Meals provided for convenience of employer (i.e., meals for employees while working)
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100% Deductible (provided they are excluded from employees’ gross income as de minimis fringe benefits)
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50% Deductible (currently scheduled to be non-deductible beginning after 12/1/25)
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With an eye towards 2018, in order to maximize tax deductions and to save time on the preparation of 2018 business tax returns, we strongly recommend that businesses update their general ledgers with separate accounts for these new meals and entertainment provisions.
Our recommended break-out is as follows:
- Business Meals – 50% deductibility
- Entertainment – 0% deductibility
- Employee-Related Events (i.e., holiday parties/summer picnics) – 100% deductibility
- Business-Related Employee or Shareholder Meetings – 100% deductibility
Should you have any additional questions, please call our office!