From Melinda May, CPA | Featherstone
A Fredericksburg Today Partner
The Tax Cuts and Jobs Act (TCJA) of 2017 generally disallowed all deductions for business entertainment, amusement, and recreation (see the May 2018 CPA Client Bulletin). However, the TCJA did not specifically turn thumbs up or down on the deductibility of business meal expenses.
Example: Jim Morgan, who owns a roof cleaning business, takes a prospect to lunch and pays the $60 bill. Under the old law, Jim could take a $30 (50%) tax deduction.
Is this still the case? In Notice 2018-76, issued in the second half of last year, the IRS clarified that such business meals generally remain 50% tax deductible. Proposed regulations will be published in the future, but business owners can rely on Notice 2018-76 in the interim.
Essentially, this notice confirms that anything that might be considered entertainment won’t be a deductible expense. The IRS’s list includes night clubs, theaters, country clubs, sports events, and so on. Regular business meals, on the other hand, may still qualify for the 50% deduction.
Next week: The five tests the IRS uses to support a deduction.