Toni Springer is a CPA and President of Toni B. Springer, CPA P.A. in Altamonte Springs, Florida. She has been providing financial advice to small- and medium-sized businesses for 10 years.
Today’s topic: Entertainment and meal deductions. Whether it’s the cost of ordering food for a late-night meeting or of taking a potential client to lunch, deductions for business meals and entertainment expenses are used often and by just about every business. The new tax legislation made changes to these deductions, and you’ll want to make sure you know how these changes will affect your business.
Old and new deduction amounts
Ed: Good morning, Toni! I know we’re in the midst of tax season and you are a very busy woman, so let’s jump right in!
We want to talk today about deductions for meals and entertainment that are available to business owners. First off, can you give us a breakdown of these deductions prior to the new tax law?
Toni: So, it used to be that businesses could deduct 50% of entertainment expenses and 50% of business meal expenses. That deduction even increases to 100% for meals that were provided by employers to employees in-house, in a cafeteria, lunch room, etc., so they would keep working.
But, as of December 31, 2017, deductions for entertainment expenses are no longer allowed. They eliminated the deduction all together. So, it used to be a 50% deduction, now it’s 0%.
Ed: Could you tell me a little bit about entertainment versus, for example, taking referral sources to lunch or something like that? By that I mean the meals you would have for marketing and business development purposes.
Toni: Business meals are considered meetings. Entertainment is when you’re not having a conversation directly with somebody for marketing or business purposes, you’re actually being entertained by a venue.
Ed: So, the Magic tickets and the other sporting events, or the theater, those would qualify as entertainment? And now those costs aren’t deductible anymore?
Toni: Yes, that’s right.
Ed: But going out to lunch with a referral source or even a client, would still be 50% deductible?
Toni: Yes, business meals are still 50% deductible.
Gray Areas?
Ed: But what about those instances that aren’t so clear cut? Like, say, I take a client to a Magic game and we grab some hot dogs? Could I still consider that a business meal?
Toni: As I read the regulations, yes, that’s my opinion. Other professionals and I have agreed that there will be more specific details on that in the future outlining how much of entertainment versus a meal will be deductible. But it appears that, if you have a meal and you’re directly engaged with somebody for a business purpose, it should be 50% deductible.
There are interpretations that are out, analyses that are out. Until, honestly, they have more of an audit and case law, I anticipate this area is going to be a very sought-after area to be abused because of the lack of definitive instructions, which are still very subjective, in my opinion.
Cafeterias and in-house meals
Ed: So, regular business meals are still 50% deductible, that’s great. But what about those in-house meals provided by employers. You said that those used to be 100% deductible. Is that going to change too?
Toni: Yes, the deduction for the meals that an employer might provide to employees for the benefit of keeping them in-house working, whether it was a cafeteria, lunch room, etc. has been dropped to 50%. And that 50% deduction will be completely disallowed after December 31, 2025.
And where that really is going to come into play is for companies that have cafeterias for their employees. How they’re going to handle that, I don’t know. I guess they could use it possibly as a revenue-income source as a business, I’m not sure.
But that’s an example, if a business provides a cafeteria or a facility for the employees to eat, those meals that they provide are now only 50% deductible, and won’t be deductible at all after December 31, 2025.
Learn More
Chances are that your business benefits from business meal and entertainment expense deductions. The Tax Cuts and Jobs Act altered the specifics of these deductions, but you now know that business meals will still be 50% deductible.
Yet, some of the provisions in the new tax code are still in flux and additional regulations and guidance from the IRS and Congress are sure to come! Make sure to stay tuned to our future newsletters for more information and updates on how your business may be affected by the new tax laws.
We would love to speak with you more about your business needs and learn how we can help you grow and manage your business. Call us at 407-649-7777 to schedule an initial consultation.
