The Tax Cuts and Jobs Act encompasses specific rules and restrictions when it applies to what is deductible and what is not deductible regarding meals and entertainment for business expenses.
In regard to entertaining clients, entertainment nor meals are now deductible in accordance with the new laws. This includes away at the home and away from the home. However, there are some exceptions and deductions to be taken for money spent on employees. There are two important percentages that can be taken regarding employee spending, which is 50 percent and 100 percent deductibility, which is explained below.
Meals: 50 percent deductible
- *Employee travel meals: Meals incurred by an employee or self-employed individual while traveling away from home if their duties require them to be away from the general area of their tax home substantially longer than an ordinary day’s work, and they need to sleep or rest to meet the demands of their work while away from home while out of town.
- Meals for employees, stockholder business meetings: Meals directly related to business meetings of employees, stockholders, agents or directors.
- Meals for meetings of business league: Meals directly related and necessary for attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade that are exempt from taxation under section 501(a).
Meals and Entertainment: 100 percent deductible
- Expenses treated as compensation: Meals, entertainment, amusement and recreational expenses treated as compensation and included as wages for income tax withholding purposes.
- Reimbursed expenses: Expenses paid or incurred by the taxpayer, in connection with services performed for another person or business, under a reimbursement or other expense allowance arrangement with the person or business, if the taxpayer accounts to such person or business by providing a breakdown of the expenses.
- Recreational, etc., expenses for employees: Expenses for recreational, social or similar activities (i.e. Christmas parties) primarily for the benefit of employees.
- Items available to the public: Expenses for goods, services and facilities you or your business make available to the general public.
Provided below are some additional examples of deductible business expenses for employers.
|*Employee Travel Meals (Definition below)||50%|
|Meals provided for the convenience of the employer||50%|
|Business meetings of employees and stockholders||50%|
|Expenses for attendance at a business meeting or convention of a Section 501(c)(6) business league, chamber of commerce, real estate boards and boards of trade||50%|
|Two employees have a working lunch at a restaurant||50%|
|Company has a manager meeting at a local (no overnight stay) hotel convention center. More than 50% of the employees attending are highly compensated employees. Lunch is served to limit the lunch break and drinks and hors d’oeuvres are served after the meeting.||50% (Lunch is considered an employee business meeting)|
|Company has a holiday party for employees and customers.||100% (For portion allocated to employees)|
|Company has an all-employee meeting at a local hotel convention center with drinks and hors d’oeuvres served after.||100% (Recreational expenses for employees)|
*Employee Travel Meals: Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession or job. You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.
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