New IRS guidelines for 2018 business meals and entertainment expenses

New IRS guidelines for 2018 business meals and entertainment expenses
25
Feb

With the Tax Cuts and Jobs Act, which affects your 2018 tax return, there are some significant changes to the way businesses can handle deductions for meals and entertainment expenses. Many business owners weren’t aware of these changes last year, which could mean a little extra work preparing for your tax return. Here’s a rundown of what’s different for tax year 2018.

The following expenses are no longer deductible:

  • Meals during entertainment (e.g. hot dogs at a baseball game)
  • Transportation to/from a restaurant for client business meals
  • Sporting event tickets
  • Club memberships and club-related expenses

The following types of expenses that used to be 100% deductible are now 50% deductible:

  • Meals provided for the convenience of the employer (such as meals for occasional employee overtime)
  • Water, coffee, and snacks at the office
  • Meals included in charitable sports packages

Not everything has changed. The following deductions are the same as prior years:

  • Meals in office during meetings of employees, stockholders, agents, or directors (50% deductible)
  • Meals during business travel (50% deductible)
  • Meals at a seminar or conference (50% deductible)
  • Meals included as taxable compensation to an employee or independent contractor (100% deductible)
  • Meals sold to a client or customer (100% deductible)
  • Food offered to the public for free (100% deductible)
  • Office holiday party or picnic (100% deductible)
  • Client business meals (50% deductible if the taxpayer is present and not lavish or extravagant)

If you’ve been coding your meals and entertainment expenses in your bookkeeping software the old way, your accountant will need to manually review each expense to determine what’s allowable. Coding these expenses correctly will keep your books clean for tax time.

Going forward, we have two key recommendations:

  1. Separate expenses that are strictly for entertainment purposes—if you don’t already have one, create a new account for these, and designate which are business meals. Travel expenses should be completely separate from entertainment, including meals while traveling. Travel expenses are 100% deductible, except for meals while traveling, which are 50% deductible.
  2. Create a separate category for employee social meals. These would include things like your holiday party, summer picnic, team building events, staff mentoring, etc. All of these continue to be 100% deductible expenses.

Navigating these changes can be challenging, particularly if you’ve traditionally had lots of meal and entertainment expenses. Don’t hesitate to reach out for help. If you aren’t sure how to proceed, contact us. We offer an expense analysis that will leave you better prepared for tax time.