Tax Reform Updates

IRS Guidance Issued Regarding Meals and Entertainment Deductions

 

The IRS has issued some much-anticipated guidance on Section 274, which was significantly impacted by of the Tax Cuts and Jobs Act of 2017 (Tax Act), addressing meals and entertainment deductions. Significant tax law changes are affecting which expenses can be deducted. These changes are applicable to all businesses.

The recent guidance from the IRS affirms the following:
1. Entertainment expenses are generally not deductible; and
2. Certain meals are deductible at 50 percent.

Previously entertainment expenses, such as sporting event tickets, were 50% deductible, but this is no longer the case. The recent IRS guidance affirms that certain meals are still deductible at 50 percent. However, a new challenge exists where meals are connected to an entertainment/recreational event. The best practice, until we receive further clarification, is to properly document “who, what, when, where and why” (and specifically whether it was connected to an entertainment event) on your receipts to assist you in addressing compliance during tax return preparation (at which time we might have further guidance from IRS).

The Treasury Department and IRS plan to publish proposed regulations that will clarify when business meal expenses are deductible and what constitutes entertainment. Until then, you can rely on the interim guidance in Notice 2018-76, which the IRS issued or contact a tax advisor in our office to discuss your questions and concerns.

Take a look at our overview earlier this year of the Tax Cuts and Jobs Act of 2017 and how it may impact individuals and businesses.