November 6, 2020 Tax Advisor

It’s been more than two years since the Tax Cuts and Jobs Act of 2017 was passed with stricter limitations on business meals and entertainment expenses. Our previous advisor from November 2018 noted the confusion with respect to separating charges and applying the law, and clarity has finally arrived with the final regulations being issued by the IRS.

Below is a summary of the updated deductibility of business meals as clarified in the regulations. These rules provide new examples that address certain scenarios raised by comments that were received from the proposed regulations.

Taxpayers may deduct 50% of an otherwise allowable business meal if:

  • The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer or an employee of the taxpayer is present at the furnishing of the food or beverages, and;
  • The food and beverages are provided to the taxpayer or a business associate.

Additionally, the regulations clarified:

  • Food or beverage expenses include delivery fees, tips and sales tax.
  • The term ‘business associate’ replaced ‘potential business contact.’   A business associate is defined as, “a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner or professional advisor, whether established or prospective.”
  • De minimis snacks and beverages are subject to the 50% limitation.
  • The term “entertainment” does not include food or beverages unless they are provided at or during an entertainment activity and the costs are not separately stated from the entertainment costs.

If you have questions on these limitations, examples or need help implementing best practices for capturing your business expenses, contact your BMF Advisor.

About the Authors

Melissa G. Dunham
CPA, MTax, MBA
Senior Manager, Taxation Services

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