The IRS has issued Notice 2018-76 as its initial understanding of the deduction for entertainment under the Tax Cuts and Jobs Act (TCJA). The important part of an IRS Guidance is that taxpayers can rely on it.
IRC Section 274 specifies the rules for deducting business meals and entertainment. Meals and entertainment are considered together because businesses use meals to entertain clients, prospects and contacts. While the TCJA made it clear that meals were still deductible, there was some concern that the IRS might reduce the what businesses might be able to deduct.
Meals are still 50% deductible if
- The meal is an ordinary and necessary business expense under Section 162(a) paid or incurred during the taxable year;
- The meal is not lavish or extravagant under the circumstances;
- The taxpayer or an employee is present when the meal is furnished;
- The meal is provided to a current customer, prospect, consultant or similar business contact; and
- Any meal provided in conjunction with an entertainment activity must have a separately stated cost on the invoice/receipt.
All of the conditions above must be met for the deduction to be allowed.
The notice gives as an example that even a meal provided at a baseball game can be deducted as long as the cost of the meal is listed separately from the cost of attending the game.
Here’s the information straight from the horse’s mouth:
