Tax Services • Published 3/19/2018 Tax Reform Bill: Meals and Entertainment Guide

 On December 22, 2017, President Trump signed a historic bill (the “Tax Reform Bill”) that initiated sweeping tax changes for the first time in 30 years. One of the changes made in the Tax Reform Bill was a change to the deductibility of meals and entertainment expenses. Below is a chart that compares the tax treatment of such expenses under the old law and the tax treatment after the enactment of the Tax Reform Bill. Organizations should review the changes to see how they might affect their businesses.

 

	Treatment Under Old Law	Treatment Under New Law
Employee-Related Expenses
Expenses for meals during employee travel	50%	50%
Expenses for food and beverages for employees furnished on the business premises[1]	100%	50%
Expenses for recreational, social, or similar activities for the benefit of employees	100%	100%
Expenses directly related to business meetings of his employees, stockholders, agents, or directors	Facility: 100% F&B: 50%	Facility: 100% F&B: 50%
Client Lunches/Dinners
Business Lunches (i.e., business lunch meetings with clients during the workday)	50%	See Below
Networking events/cocktail parties with clients/referrals	50%	See Below
Entertainment Expenses
Expenses for entertainment without any food/beverage component	50%	0%
Expenses for entertainment with food and beverage component	Entertainment: 50% F&B: 50%	Entertainment: 0% F&B: See Below
Expenses related to tickets for any sports event which is organized for the primary purpose of benefiting certain charities	100%	0%
Other Expenses
Expenses for goods, services, and facilities made available to the general public	100%	100%

^[1] Note, however, that any expenses incurred or paid after December 31, 2025 for meals provided for the convenience of the employer will be nondeductible.

Client Lunches/Dinners

• Current administrative guidance indicates that meals provided for clients or customers could be considered entertainment. Thus, it is possible that under the new law expenses for such meals would be considered a nondeductible entertainment expense rather than a 50% deductible food and beverage expense.  We believe this risk is moderate. 
• However, there is an even larger risk that networking events that occur in spaces more conducive to entertainment (cocktail lounges, night clubs, etc.) may be considered nondeductible entertainment costs. Therefore, you may want to ask for itemized billings of costs for such events and keep track of the food and beverage expenses separately. 
• This way, if the rules are made more clear and separately stated food and beverage in an “entertainment” venue are declared deductible, then clients will have the appropriate records to substantiate the deduction for the 2018 tax year.

Entertainment Expenses

• Under current guidance, “entertainment” means activities of a type generally considered to constitute entertainment such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips.
• Any entertainment expenses (aside from any food and beverage component) are nondeductible under the new law.
• Under current regulatory guidance, “entertainment” may also include food and beverage costs associated with entertainment. It is not clear how this will be interpreted under the new law changes.  Thus, you may want to ask for itemized billings of costs for such events and keep track of the food and beverage expenses separately. 
• This way, if the rules are made more clear and separately stated food and beverage at an “entertainment” event are declared deductible, then you should have the appropriate records to substantiate the deduction for the 2018 tax year.

 

Tax Reform Help 

If you want to learn more about tax reform or have questions, please visit our tax reform page or contact us.