Are Your Meals Tax Deductible?

Nadine Adams, CPA

Tax Senior Manager

November 27, 2018

In our previous article, Questions Still Remain: Changes to Tax Deductible Fringe Benefits and Meals and Entertainment, we discussed the ambiguity surrounding the deductibility of meal expenses in conjunction with entertainment expenses. It was previously unclear whether a meal consumed just prior to (or after) attending an entertainment activity was a disallowed expense; however, the IRS has now issued interim guidance on this issue. The IRS clarified that the definition of what constitutes entertainment has not changed under the provision to the tax reform ACT.

Under the guidance, taxpayers may deduct 50 percent of an otherwise allowable meal expense if:

  • The expense is an ordinary and necessary expense.
  • The expense is not lavish or extravagant.
  • The taxpayer, or an employee of the taxpayer, is present at the meal.
  • The meal is provided to a current or potential business contact.
  • If the meal is provided during or at an entertainment activity, the meal is purchased separately or the cost of meal is stated separately from the cost of the entertainment on the receipt.

Let’s look at a couple of examples:

Example 1. The taxpayer invites a business contact to an Atlanta United game. The taxpayer purchases tickets for the pair to attend the game and food and drinks for the pair to eat while at the game. Even though the tickets are non-deductible, the separately purchased food and drinks are 50 percent deductible.

Example 2. The taxpayer invites a business contact to attend as Atlanta Falcons game in a suite, where they have access to a buffet of food and drinks. On the receipt, the cost of the buffet is broken out from the cost of the suite on the receipt. In this case, the buffet would be 50 percent deductible.

Example 3. The taxpayer invites a business contact to attend an Atlanta Hawks game in a suite, where they have access to a buffet of food and drinks. The taxpayer is provided one bill that does not specifically list the cost of the suit and buffet. Since no delineation is made, the entire expense is non-deductible.

With the new guidance in place, record-keeping is still very important. Taxpayers should ensure that their internal systems are set up in a way to capture deductible expenses. These deductible expenses should be tracked separately to guarantee that they are fully deducted on the tax return.

Should you have further questions, please reach out to Nadine Adams at nadams@pkm.com for assistance.

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