Q:
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What changes were made to the deductibility of meal and entertainment expenses before and after the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017?
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A:
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Before the enactment of the TCJA, if taxpayers could substantiate that expenses related to entertainment, amusement, recreation, or facilities used for such activities were “directly related to” or “associated with” their trade or business, such expenses were generally deductible, subject to the 50% deduction limitation.
After the enactment of the TCJA, expenses related to entertainment, amusement, recreation, or facilities used for such activities are generally no longer deductible. However, most business meal expenses remain deductible at 50%. Therefore, the TCJA primarily eliminated the deduction for business entertainment expenses while preserving the deduction for certain meal expenses.
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Q:
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Are there any exceptions after the elimination of the entertainment expense deduction?
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A:
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Yes. Certain entertainment-related expenses that are primarily for the benefit of employees or are directly related to business activities may still qualify for deduction, including:
(1) Food and beverages provided to employees at the employer’s business premises;
(2) Entertainment, social, or similar activities primarily provided for the benefit of employees;
(3) Expenses directly related to business meetings involving employees, shareholders, or directors;
(4) Activities or events provided to the general public, such as meals provided during seminars or promotional events.
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Q:
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What substantiation requirements apply to business meal and entertainment expenses?
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A:
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Taxpayers must maintain adequate records or documentation to substantiate such expenses, including the amount of the expense, the date and location of the expense, the business purpose of the expense, and the business relationship between the taxpayer and the individuals involved. If sufficient documentation cannot be provided, the related expenses may be disallowed as tax deductions.
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Q:
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Which meal expenses remain 100% deductible?
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A:
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Under IRC Section 274(e), certain meal expenses remain fully deductible, including meals sold to customers or clients; meals provided to employees and treated as taxable fringe benefits; and meals provided free of charge to the general public, such as food and beverages offered in a waiting area.
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Q:
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Will there be further changes to the deductibility of meal and entertainment expenses?
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A:
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Yes. Under IRC Section 274(o), certain expenses related to employer-operated eating facilities and certain de minimis fringe benefits will no longer be deductible for tax years beginning after 2025.
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