Under the new tax law, there are fewer deductions available for entertainment and meal expenses. Businesses can no longer deduct entertainment expenses — such as taking clients or prospects to sporting events, movies and concerts. This includes expenses for entertainment facilities like a stadium suite or skybox.
However, expenses incurred for recreational or social activities primarily for the benefit of employees — such as a holiday party or summer outing — are still fully deductible. As for entertainment expenses in employee W-2 wages, they’re still fully deductible, too.
Meals provided to employees who are traveling are still 50-percent deductible. Employer-provided meals — provided for convenience on the business’ premises — are now only 50-percent deductible. Previously, these meals were 100-percent deductible. This change now includes meals provided in the employer’s on-site dining facility. And, beginning Jan. 1, 2026, the deduction for employer-provided meals for convenience will be 0 percent.
Based on these changes, it is important to immediately start separating your meal and entertainment expenses into the proper categories — 100-percent, 50-percent, 0-percent deductibility — to better calculate the proper deduction when you file your 2018 tax return. It may also be prudent to conduct a review of your meal and entertainment expenses for 2017 and prior tax years to maximize the deduction under prior rules.
LBMC put together this reference chart as a tool to help you navigate the changes to the meals and entertainment deduction.
The IRS issued Notice 2018-76 spelling out the five conditions that taxpayers must meet to deduct 50% of the cost of business meals.
- The expense must be “ordinary and necessary.”
- The taxpayer (or an employee) must be present at the meal.
- The meal can’t be lavish.
- It must be provided to current or potential customers.
- The meal cost must be separately stated from the entertainment cost.
The Tax Cuts and Jobs Act is complex. Nevertheless, consulting with an expert for all tax matters such as the professionals at LBMC will bring you the perspective your business needs to get the most out of the next tax season.