IRS Clarifies How to Accurately Deduct Meals

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Philip J. Schuyler, CPA

The IRS recently issued guidance clarifying its position that taxpayers may generally continue to deduct 50% of the food and beverage expenses incurred while operating their trade or business. The passage of Tax Cuts and Jobs Act last year led to some confusion on what was subject to the 50% deduction limitation for food and beverage expenses and entertainment, amusement and recreation expenses that are not deductible. 

 Taxpayers may continue to deduct 50% of food and beverage expenses if:

  1. The expense is an ordinary and necessary business expense under Section 162(a), paid or incurred during the tax year while carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;   
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.  The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. 

Click here to obtain the IRS guidance regarding this topic. The guidance includes three descriptive examples of when the 50% deduction for food and beverages expenses can be applied or when the expenses should be classified as entertainment.

Related Articles:

"New Tax Law Impacts Entertainment Expenses" published 1/18/2018