What are Business Meals?
Under the Tax Cut and Jobs Act (TCJA), allowable business meals remain deductible expenses, subject to the 50% limitation. As a recap, allowable business meals are 50% deductible if they are:
- Ordinary and necessary expenses paid or incurred in carrying-on any trade or business; when the meal is directly related, or directly precedes or follows a business discussion concerning your trade or business
- Not lavish or extravagant under the circumstances
- Provided when the taxpayer (or employee of the taxpayer) is present
- Provided to a current or potential business customer, client, consultant, or similar business contact
- In the case of food and beverage provided in conjunction with an entertainment activity, the food and beverages are purchased separately from the entertainment or the cost of the food and beverage is itemized separately from the entertainment
Until further guidance is published and effective, relying on Notice 2018-76 for the tax treatment of business meals, as part of an entertainment activity, is permitted. The Treasury Department and the IRS intend to issue separate guidance addressing the treatment of expenses for food and beverages furnished primarily to employees.
No business meal deduction is allowed unless adequate records or written sufficient evidence corroborating the expenditure is retained. The business meal must have documentation to support of the time, date, and place of the expense and include the total amount of the meal, business purpose and the business relationship of guests.
As business owners, cultivating consistent documentation habits would benefit you in the short and long run. Developing a system to adequately support and identify business deductions could save you tax dollars. These documentation habits and systems could include manual and/or digital processes, but without them recreating the business activity can be time consuming.
If you would like to discuss the business meal deduction and how documentation best practices applies to you and your business activity, do not hesitate to contact me.
Learn about the business entertainment deduction.
Learn about the qualified business income deduction.
Learn about year end tax planning.