The Internal Revenue Service recently issued a Notice (Notice 2018-76) regarding the deductibility of business meal expenses under the new Tax Act. The Notice may be relied on until proposed regulations are published. The Notice provides that most business meal expenses will be 50 percent deductible as long as a separate invoice is provided for the food. The new Tax Act prohibits the deduction of entertainment expenses. It has been unclear until this Notice whether business meals involving a client or a potential client would fall into the entertainment expense category. As such, until the proposed regulations are published, a taxpayer may deduct 50 percent of business meal expenses if:
- The expense is an ordinary necessary expense;
- The expense is not lavish or extravagant;
- The taxpayer or an employee of the taxpayer is present;
- The food and beverages are provided to a current or potential client, consultant or similar business contact, and
The food and beverages are purchased separately from the entertainment expenses or the cost of the food and beverages is set out separately from the cost of entertainment on an invoice or receipt.
If you have additional questions concerning the deductibility of meals for businesses or have other business tax questions, please contact our offices at 515-225-1100.