Employee Benefits Blog

Posts tagged meals and entertainment

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Tax Deductibility of Meals and Entertainment Expenses

A Practical Guide to the 2018 Tax Cuts and Jobs Act Changes

The Tax Cuts and Jobs Act of 2017 (the Act) made some very significant changes to the deductibility of meals and entertainment expenses. The purposes of this article are to summarize those changes and to provide businesses with some guidelines for grouping 2018 (and beyond) meals and entertainment expenses based on whether they are 100%, 50%, or 0% deductible (or, in the case of certain transportation workers, 80% deductible) under the new rules. This discussion assumes that the expense in question is an ordinary and necessary business expense, and is not lavish or extravagant; if either of these criteria are not met, then the expense is automatically nondeductible.

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New Proposed Regs Address 50% Limit on Deduction of Meals and Entertainment Expenses

The general rule under Code Section 274(n) is that a taxpayer can deduct only 50% of the cost of food, beverages, and entertainment.  However, there are numerous exceptions to this rule.  For example, an employer can deduct 100% of the cost of these items if they are sold to customers, or if they are incurred in connection with a recreational or social event primarily for the benefit of non-highly compensated employees (e.g., a typical company-wide summer outing or holiday party, or a tax accounting firm’s April 15 happy hour).