Tax reform has had a significant impact on the tax deductions you can now claim for business entertainment and meals.
The new tax law also eliminated business deductions for entertainment. As a result, no deduction is allowed with respect to: (1) an activity generally considered to be entertainment, amusement or recreation; (2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items. Under prior law, there was an exception to this rule for entertainment, amusement, or recreation directly related to (or, in certain cases, associated with) the active conduct of a trade or business. This is no longer the case.
The chart below shows you how the Tax Cuts and Jobs Act treats 12 meal and/or entertainment events.
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Description |
100% |
50% |
Zero |
Meals with clients and prospects |
|
X |
|
Entertainment with clients and prospects |
|
|
X |
Employee meals for convenience of employer |
|
X |
|
Employee meals for required business meeting |
|
X |
|
Meal served at Chamber of Commerce meeting |
|
X |
|
Meals while traveling away from home overnight |
|
X |
|
Year-end party for employees and spouses |
X |
|
|
Golf outing for all employees and spouses |
X |
|
|
Year-end party for customers |
|
|
X |
Meals for general public at marketing presentation |
X |
|
|
Team–building recreational event for all employees |
X |
|
|
Golf, theater, or football game with your best customer |
|
|
X |
In Notice 2018-76, the IRS states that client and prospect business meals continue as tax deductions under the Tax Cuts and Jobs Act.
This is very good news indeed.
Under this new IRS guidance, you may deduct 50 percent of your client and prospect business meals if
To prove your business meals, follow the two easy steps below:
In the event that the receipt is not available, such as with the purchase of hot dogs and drinks at a baseball game while sitting in the stands, make sure to make a written note of the expenditures immediately after the game.
If you charge a business meal to a credit card, the credit card statement provides your proof of payment. When possible, always pay by credit card or write a check so that you have clear proof of payment.
Proof of payment is not proof of what you purchased, so in addition to proof of payment, keep the receipt with the notations as described earlier. With this combination of proof of payment and receipt with notations, you have what we call audit-proof documentation.