There’s probably no topic under the sun that hasn’t provoked more joking comments than “taxes,” including this one by former radio and TV entertainer Arthur Godfrey: “I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money.” With the passage of the 2017 Tax Cuts and Jobs Act (TCJA), many changes were made to the tax code including changes to business meals expenses. So, if you hear someone say, “A guy’s gotta eat, doesn’t he?”, the answer is “Yes, but the rules have changed.”
What is the 2017 TCJA?
The 2017 Tax Cuts and Jobs Act is a major update to the U.S. Tax code, creating the most extensive taxation changes in the past 30 years, affecting individuals and businesses. Some of the business tax changes include:
- Corporate income tax rate reduction from 35% to 21%
- New deduction for qualified business income
- Deduction limits on business meals expenses
- New limits on deductions for business interest expenses
What Business Meals Expenses are You Still Allowed to Deduct?
Prior to the Tax Cuts and Jobs Act, a business owner was allowed to deduct 50% of business meals expenses and entertainment expenses that were business related. And, meals provided on the business premises for the convenience of the employer were generally 100% deductible.
Under the new law, entertainment expenses are now completely nondeductible, unless the expense is for recreation or social activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees. Specifically:
- Office holiday parties continue to be fully deductible.
- Expenses for entertaining clients, like sporting and concert events, as well as resort trips, are now not deductible.
- Business meals and employee travel meal expenses remain 50% deductible.
- You can’t deduct costs of meals while traveling for personal reasons, only in a direct instance where business was conducted.
Taking Deductions for Business Meals Expenses
The requirements for business meals expenses are now stiffened:
- The business must verify that the expense is a legitimate business expense—an “ordinary and necessary” business expense.
- There must be documentation on hand (in case of an audit) to back up the expense.
The business can deduct either 50% of the actual meal cost or 50% of the standard IRS meal allowance. However:
- The costs may not be “lavish or extravagant.”
- A company employee must be present at the meal.
- If the meal is provided at a place of entertainment, the meal (by itself) must be separately priced from the entertainment.
- Taxes and tips are included in the 50% deduction limit.
Seek Professional Assistance for Your Tax Needs
Contact Doerhoff & Associates CPA, based in Jefferson City, MO for professional tax and accounting assistance. Don’t try to deal with the new tax laws alone. Doerhoff & Associates has one goal in mind—to provide comprehensive accounting services designed specifically for your success.