The new tax act establishes additional limitations on the deductibility of certain business meals and entertainment expenses. Under the act, entertainment expenses incurred or paid after Dec. 31, 2017 are nondeductible. Business meals are generally now 50% deductible. One of the exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees” (e.g, office holiday parties, picnics, summer outings, etc. are still 100% deductible). Business meals provided for the convenience of the employer are now only 50% deductible, whereas before the act they were fully deductible. Barring further action by Congress, those meals will be nondeductible after 2025.
Businesses must continue to account for meals and entertainment expenses by classification in order to apply the appropriate limitation. We recommend that you set up an account for Business meals for your 50% deductible meals and an account for Entertainment expense for your non-deductible entertainment, if any. We also recommend that you set up a separate account for Company functions, such as office holiday parties, etc. This will assist you in organizing your expenses and keeping track of what is and isn’t deductible.
Click here for comprehensive charts and examples to assist you in classifying and applying the proper treatment for many types of meals and entertainment expenditures. There may be more guidance provided by the Internal Revenue Service at a later date, but this is current as of November 2, 2018. These examples by no way are meant to encompass every possible situation or scenario that may be encountered, you should contact your tax advisor at Mattina Kent & Gibbons, P.C. for your specific questions.