What will happen to meals and entertainment deduction in 2018?

Prior to 2018 tax year, taxpayers were allowed to deduct up to 100% of their meal and entertainment expenses required to conduct their business, however due to the most recent changes to the tax law, this deduction will undergo significant changes. According to the Tax Cuts and Jobs Act, meals deduction will be subject to stricter limits in 2018 and entertainment deduction will be entirely repealed.

Starting in 2018, the 50% meals and entertainment deduction will only apply in certain instances, including for meal expenses incurred during travels for legitimate business meetings, such as conferences, training or education. These travels should be outside of normal daily business activities of the employee. Expenses such as snacks or food at networking or promotional events will be deductible at 50%. Food provided to employees for the convenience of the employer (to keep employees working late) will also be deductible on 2018 tax returns, subject to 50% limit. Previously, these were fully deductible, however starting 2018, the deduction is reduced to 50%.

Per the Tax Cuts and Jobs Act, the only instances where 100% of food deductions will be allowed are food purchases included in cost of goods sold of the company, meaning restaurants, stores, supermarkets will not be limited in their food expense deductions directly related to the cost of goods.

Considering that entertainment expense deduction disappears in 2018, the question is whether it means that a lunch with a client or a partner will fit into the entertainment category or will be considered a meal. Verum Tax and Accounting team currently advises all clients to continue keeping track of all meals and entertainment expenses in separate expense categories, pending further guidance from the IRS regarding deductibility of such expenses.

Disclaimer:

This article does not constitute a tax or legal advice. IRS will be providing further guidance later in 2018 on the changes outlined in The Tax Cuts and Jobs Act.

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