Businesses and employers need to take note of the new rules as they plan their 2018 meals and entertainment budgets. The Tax Cut and Jobs Act of 2017 (TCJA) places stricter limits on what businesses can deduct meals and entertainment expenses for clients, or its employees.

Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule will now also apply to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be nondeductible. See the following tables for comparing the rules before and after the TCJA.


Employer deductions for business-related meals and entertainment under the TCJA from 2017 to 2018

 

 

Entertaining Clients: Entertainment
 2017 Rules  2018 Rules (New)*
Entertainment expenses: 50% deductible.
Sporting, concert or other events 50% deductible at face value of ticket.
No deduction for entertainment expenses
Tickets to qualified charitable events: 100% deductible No deduction for entertainment expenses
Employee Travel Meals
 2017 Rule  2018 Rules (New)*
Qualified meal expenses: 50% deductible No change
Meals Provided for Employer Convenience (ex. on-premise cafeteria)
 2017 Rules  2018 Rules (New)*
Expenses: 100% deductible provided the meals are excluded from the employees’ gross income as de minimis fringe benefits. Otherwise, 50% deductible. 50% deductible until 2025.
After 2025, nondeductible.
Office Holiday Parties
 2017 Rules  2018 Rules (New)*
Expenses: 100% deductible No change

*Subject to interpretation from the Internal Revenue Service. The following guide is an analysis and summary related to changes in the new law and tax rules. Be sure to consult your tax professional for your specific situation before planning policy changes.


How Does This Impact Your Business-related Deductions?

The TCJA is the largest overhaul of the tax code in more than 30 years, and we’ve covered only some of the business-related tax provisions here. Please contact us if you have questions about how they may affect your business.