M&E Under TCJA

Meals and entertainment expenses have a long history in business. They have been used to strengthen business relationships with colleagues, peers, and existing or potential clients. The deductions allowed have varied depending on the type of expenditure.

Under the new Tax Cuts & Jobs Act the amounts of deductions allowed have been updated effective January 1, 2018. Following is a quick analysis of the old and new rules.

Entertainment. Previous law generally allowed for a 50% deduction for expenditures such as entertaining clients with tickets to sporting events or golf. Under the new rules, however, entertainment expenses are no longer deductible.

Meals. When meals for employees were provided for the convenience of the employer (such as bringing in lunch during a busy time to allow an employee to keep working or take a shorter break), these were generally 100% deductible. The new 2018 rules make these types of meals only 50% deductible.

Travel Meals. Many small business owners have believed that meals consumed while traveling for business are treated like other travel expenses (e.g., lodging, car rental), making them 100% deductible. Under both the old and the new rules this type of expenditure remains only 50% deductible.

Company/employee parties. When a company hosts an social/recreational event (think annual company party) to benefit non-highly compensated employees (i.e., not just management), the costs of the activity remain 100% deductible. 

In all circumstances there is, of course, a reasonableness standard. The company can't hold a party every day and claim it as a 100% deduction. All expenses are subject to the expectation that they qualify as  "reasonable and necessary," and appropriate documentation needs to be maintained.

While this brief article attempts to simplify the new rules, these points are based on generalizations. Please contact us if you have specific questions about the applicability of the Tax Cuts & Jobs Act to your situation.