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Tax Reform: Meals and Entertainment Changes for Businesses in 2018

2 men golfingBusinesses and employers need to take note of the new rules as they plan their 2018 meals and entertainment budgets. The Tax Cut and Jobs Act of 2017 (TCJA) places stricter limits on what businesses can deduct for meals and entertainment expenses for clients, or its employees.
Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.
Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule will now also apply to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be nondeductible. See the following tables for comparing the rules before and after the TCJA.
Porte Brown LLC recommends setting up general ledger accounts to reflect the new categories for the M&E expenses, to aid in properly classifying them for tax purposes under the new rules.
  1. Business Meals (50% deductible)
  2. Entertainment (non-deductible)
  3. Office parties/events for employees (100% deductible)
Here is a chart that describes the different categories and changes effective 1/1/2018.
Entertaining Clients : Meals

2017 Expenses (Old Rules)

2018 Expenses (New Rules)*

Qualified meal expenses: 50% deductible

No change

Entertaining Clients: Entertainment

2017 Expenses (Old Rules)

2018 Expenses (New Rules)*

Entertainment expenses: 50% deductible. Sporting, concert or other events 50% deductible at face value of ticket

No deduction for entertainment expenses

Tickets to qualified charitable events: 100% deductible

No deduction for entertainment expenses

Employee Travel Meals

2017 Expenses (Old Rules)

2018 Expenses (New Rules)*

Qualified meal expenses: 50% deductible

No change

Meals Provided for Employer Convenience (ex. on-premise cafeteria)

2017 Expenses (Old Rules)

2018 Expenses (New Rules)*

Expenses: 100% deductible provided the meals are excluded from the employees’ gross income as de
minimis fringe benefits. Otherwise, 50% deductible.

50% deductible until 2025. After 2025, nondeductible

Office Holiday Parties

2017 Expenses (Old Rules)

2018 Expenses (New Rules)*

Expenses: 100% deductible

No change

*Note, IRS Regulations and guidance is forthcoming.
If you have any questions on how this new law impacts your business, please contact your Porte Brown Partner or Accountant and we will be happy to assist you.
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