As many have heard, the new Tax Cuts & Jobs Act provides stricter limits on the deductions of business meals and entertainment expenses. Under these new regulations entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under the specific exceptions of Code Section 274(e).
One of those exceptions is the office holiday party for the benefit of the taxpayer’s employees, other than highly compensated employees. Business meals provided for the convenience of the employer are now only 50% deductible, whereas before the act they were fully deductible. Barring further action by Congress, those meals will be nondeductible after 2025.
Businesses should keep the new rules in mind as they plan their 2018 meals and entertainment budgets. Care should be taken in accounting for and tracking these expenses to be in compliance with the new regulations. See below for a chart comparing the deductibility rules before and after the Act for some of the more common types of expenditures:
| Type of Event | Old Law (2017 Rule) | New Law (New Rule) |
|---|---|---|
| Office Holiday Party or Picnic | 100% deductible | 100% deductible |
| Client Business Meals | 50% deductible | 50% deductible |
| Entertainment-related Meals | 50% deductible | No Deduction |
| Transportation to/from Restaurant for Client Business Meal | 100% deductible | 100% deductible |
| Sporting Event Tickets | 50% deductible for face value of ticket | No Deduction |
| Club Memberships | No Deduction | No Deduction |
| Meals Provided for the Convenience of Employer | 100% deductible | 50% deductible (nondeductible after 2025) |
| Meals Provided to Employees Occasionally and Overtime Employee Meals | 100% deductible | 50% deductible (nondeductible after 2025) |
| Water, Coffee, and Snacks at the Office | 100% deductible | 50% deductible (nondeductible after 2025) |
| Meals During Business Travel | 50% deductible | 50% deductible |
| Meals at a Seminar or Conference, or at a Business League Event | 50% deductible | 50% deductible |
| Golf Sponsorships and Outings | Meals and Golf 50% deductible | Meals and golf are nondeductible |
Congress has not completely done away with the business lunch. However, tax professionals and organizations are asking on behalf of taxpayers for additional guidance from the Department of the Treasury and the Internal Revenue Service in order to comply with the changes on their 2018 tax returns and financial statements. If you have any specific questions regarding the new rules under please contact us.