The IRS Issued New Guidance on Business Expense Deductions for Meals and Entertainment
For the last ten months, interpretation of the 2017 TCJA tax reform was that business meals weren't deductible if a taxpayer (or employee) was dining with a customer. This was a radical change to prior rules. Fortunately, the IRS issued recent guidance on this topic and we're all breathing a sigh of relief.
IRS Notice 2018-76 states that "taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact."
Entertainment, amusement, and recreation expenses (not meals, think hockey games) remain unallowable deductions. However, the affirmation that client business meals remain deductible is a relief for many small business owners. Feel free to contact us if you have questions on this guidance.
What the impact to your bottom line? Assume $5,000 of client meals for the year and an average 40% tax burden, and you'll save $1,000 in taxes.
The IRS's clarified position can be found on their site here.