One of the more interesting aspects of the Tax Cuts & Jobs Act (TCJA) was the modification to the very popular business tax deduction known as Meals & Entertainment. There has been a lot of confusion surrounding what has and hasn’t changed so there could be some further guidance from the IRS. With that in mind, we will focus on how many are interpreting the changes as they are worded now.
In the past business owners or employees could take clients to sporting events, movies, concerts or even for a round of golf and get a deduction for 50% of the cost as the entertainment portion of the Meals & Entertainment deduction. This is no longer the case. The meals portion of this deduction has been modified.
As of 12/31/17 the TCJA eliminates the deduction of entertainment expenses with existing or prospective clients. In addition to the events mentioned above, the act eliminates the deduction of expenses for entertainment facilities (think corporate suites at sporting events) as well as corporate memberships in any club organized for business (think golf course memberships). To take it even a step further, you can’t even deduct the cost of your meals while attending these events with clients.
Employers are still able to fully deduct expenses incurred for social or recreational events, including meals, that primarily benefits their employees (think office Christmas party or company outing)
In the past Employers were able to deduct 100% of the cost of meals that were for the employers convenience. This means meals provided by employers to their employees that need to be available for work during that mealtime. The TCJA has now made these expenses 50% deductible. See the chart below for the deduction for different types of meals.
|Meals with clients/prospective clients at entertainment activity||Nondedcutible|
|Meals with clients/prospective clients with substantial business discussion||50% Deductible|
|Meals with clients/prospective clients without substantial business discussion||Nondedcutible|
|Meals provided to employees for the convenience of the employer||50% Deductible (until Jan 1, 2026)|
|Meal reimbursements for employees while traveling on business||50% Deductible|
|Free meals to employees from an on-site dining facility||50% Deductible (until Jan 1, 2026)|
|Company parties or similar social events for employees||100% Deductible|
It will be very interesting to see how this effects universities and professional sports teams who heavily rely on selling corporate suites. Also, golf courses who rely on corporate memberships will surely be effected. There will no doubt be companies that will continue to pay for these corporate suites and memberships due to the value they put on being able to entertain clients. However, I would think there are quite a few businesses who are on the fence about the benefit to begin with and the loss of the 50% tax deduction could be the nudge they were looking for to ditch the expense all together.