The new tax act has changed the deductibility of meals and entertainment for 2018 and forward. The good news is that business meals are generally still deductible at 50% of the cost. However business entertainment activities are no longer deductible.
We encourage you to be proactive by identifying or reclassifying your expenditures in these separate general ledger accounts listed below. Those expenditures may have previously been combined in an account titled Meals and Entertainment; however, it is important that meals are kept separate from entertainment.
Any expenses with respect to entertainment, amusement, or recreation is not deductible, even if business is conducted. This includes activity such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips.
Employee holiday parties and picnics are still 100% deductible. These can be a separate account or just included in your general office expense account. Food offered to the public for free such as seminars or an open house are also 100% deductible so can be included in this account or in promotion expense.
Documentation is still required so that a taxpayer is able to prove:
- the amount of the expenditure;
- the time, date and place of the expenditure;
- the purpose of the business discussion;
- and the identification of the people who participated. The business purpose documentation is very important in order to get the deduction.
This category also includes employee meals for business travel, meals provided occasionally to employees for the convenience of the employer, and water, coffee, or snacks at the office. The IRS intends to issue separate guidance addressing the deductibility of food and beverages provided onsite to employees at a later date.
If you have any questions, please contact us and we would be glad to discuss or assist you with this.