The Tax Cuts and Jobs Act (TCJA) of 2017 changed the amount of businesses-related meals and entertainment costs that could be deductible on your business tax returns. Under prior law, businesses could generally deduct 50% of meals and entertainment expenses, unless a specific exception applied in which they would be 100% deductible. The tax reform disallows the 50% deduction for expenses relating to entertainment, amusement or recreation that are directly related to the business, except for the benefit of employees like office parties.

Here is a summary of some of the deductible and non-deductible meals and entertainment expenses:

Deductible

  • 50% deductible – employer-provided meals and snacks, coffee and snacks in the employee breakroom and employee overtime meals
  • 50% deductible – meals at an entertainment event
  • Expenses to attend a business league meeting or trade convention
  • Expenses for goods, services, and facilities that are treated as wages to the employee
  • Reimbursable expenses
  • Expenses related to business meetings of taxpayer’s employees, stockholders, agents, or directors
  • Expenses for goods or services that the taxpayer sells for fair market value
  • Expenses for goods, services or facilities that the taxpayer makes available to the public

Non-Deductible

  • Business activities considered entertainment, amusement, or recreation
  • Membership dues

The change that will most likely affect how expenses are recorded is the separation of meals from business-related entertainment, amusement or recreation events. For 2018, only 50% of the cost of meals incurred at business-related entertainment, amusement or recreation events is deductible and no deduction is allowed for the cost of the actual business-related event. In order to receive the 50% deduction for qualifying meals, the business will now have to record or keep track of those expenses separately.