Can I Expense That? Summary of Changes to Meals and Entertainment Deductibility under the TCJA

By Mandi C. Raneri, CPA and Stephen J. Cox 

The recent passage of the Tax Cuts and Jobs Act (TCJA) signed into law on Dec. 22, 2017, was the most significant tax law change in over 30 years. An area of the tax code that underwent significant change relates to the deductibility of meals and entertainment. Here’s a brief summary of the changes.

TCJA Meals & Entertainment Overview

Under pre-TCJA tax law, meals and entertainment expenses were generally deductible at 50% with some meals eligible for 100% deductibility.  Effective for amounts paid or incurred after Dec. 31, 2017, the TCJA repeals the rule that allowed any deduction for entertainment, amusement, or recreation expenses that were related to a taxpayer’s trade or business. Instead, as a general rule, the code provides that an otherwise allowable deduction related to a taxpayer’s trade or business cannot be claimed for an activity considered entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity.

Sporting Events

The limitation on entertainment deductions applies to the cost of tickets to sporting events, stadium license fees, private boxes at sporting events, theater tickets, golf club greens fees, etc. All entertainment and associated expenses should be recorded separately in an account such as “Entertainment – Nondeductible” to be specifically excluded as nondeductible.

Business Meals

Under the TCJA, meals on company premises for the benefit of the employer – previously 100% deductible – are now subject to a 50% limitation. Business meals and food and beverage expenses associated with work travel remain 50% deductible.

For example: A business owner drives to meet a client and has dinner with the client where substantial business is discussed followed by attending a sporting event. In this case, the deductibility would be the following:

  • Travel/mileage – 100% deductible
  • Meals – 50% deductible
  • Sporting event tickets – Nondeductible
  • Drinks during the sporting event – qualifies as 50% deductible under Meals

However, there are situations where expenses incurred are exempt from the limitations imposed by the TCJA. Recreational expenses paid for the benefit of employees are still 100% deductible. This includes social and celebratory activities such as parties, picnics, summer outings, open houses, and sporting events.

Business Gifting Rule

Entertainment expenses that are considered nondeductible can still qualify for a $25 deduction under the business gifting rules. A business is allowed to deduct up to $25 as a de minimis gift to each person per year. For example, if a taxpayer purchases sporting event tickets for 10 non-employee persons, then a deduction of $250 is allowed.

If you have any questions or concerns on the deductibility of your entertainment and meal expenses, please contact your Barnes Wendling tax advisor for more information. For more detail on the law watch our recent webinar,  “What the Tax Cuts and Jobs Act is Really Telling Us.”

Download our Tax Cuts and Jobs Act Q & A 

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