Under tax law applicable for expenditures before January 1, 2018, generally meal and entertainment expenses were 50% deductible. With changes made with the recent legislation (H.R. 1) entertainment expenses are 100% NOT deductible for amounts paid or incurred after December 31, 2017.
If you currently track your expenditures for both meals and entertainment in a combined general ledger account you will want to consider setting up a new account in your system to track meals separately from entertainment expenses as meals are generally still 50% deductible and entertainment expenses are not deductible. This could save you time and effort compiling the amount of business expenses incurred in 2018 for 50% deductible meal expenses and 100% nondeductible entertainment expenses.
H.R. 1 repealed the deduction for entertainment, amusement and recreation expenses (even if directly related to the conduct of a taxpayer’s trade or business).
No deduction is allowed for:
- An activity which is the type typically considered to constitute entertainment, amusement or recreation
- Dues or fees to any social, athletic or sporting club or organization
- A facility (or portion of a facility) used in connection with entertainment, amusement or recreation
This includes tickets to sporting and other entertainment events, even if given to customers or employees. Holiday parties remain 100% deductible.
In addition, certain meals provided by an employer that were 100% deductible prior to January 1, 2018 are now only 50% deductible. These meal expenses include food and beverages provided to employees as de minimis fringe benefits, meals provided at an eating facility that meets the requirements for an on-premises dining facility and to meals provided on-premises to employees under section 119 for the convenience of the employer. After 2025 on-premises meals and section 119 meals expenses will be fully nondeductible.
Finally, expenses associated with providing qualified transportation fringes and any expense to provide transportation for commuting between the employee’s residence and place of employment (unless ensuring the safety of the employee) are nondeductible unless treated as compensation income to the employee. This includes van pools, subway or transit cards and qualified parking expenses.
It should be noted that a 50% deduction for food and beverage expenses associated with a trade or business is retained.
If you have any questions regarding these changes in law or how to set up systems to appropriately track these expenses, please contact one of RubinBrown’s Tax Services Group professionals.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.