IRS Clarifies Allowable Business Meal Deductions

As you may already know, the Tax Cuts and Jobs Act (TCJA) disallows most deductions for business-related entertainment expenses. In a recent IRS Notice (see Notice 2018-76 and News Release IR 2018-195), however, the IRS clarified that taxpayers generally may continue to deduct 50% of meal expenses associated with their trade or business. More specifically, the IRS will allow deductions for meals if the expenses meet the following criteria:

(1) the expenses are ordinary and necessary under IRC section 162;

(2) the expenses are not lavish or extravagant;

(3) the taxpayer, or an employee of the taxpayer, is present when food or beverages are provided;

(4) food or beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and,

(5) food or beverages are purchased separately from entertainment (or stated separately on one or more bills, invoices, or receipts).

Taxpayers can rely on guidance provided in Notice 2018-76 and News Release IR 2018-195 as a guideline for related deductions until proposed regulations are published by the IRS.

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