In April of 2018 the AICPA asked the House Committee on Ways and Means for an update to tax deductions for business meals with clients and prospects. The AICPA wanted to confirm that the Tax Cuts and Job Acts disallowance of entertainment as understood by the Ways and Means Committee included the disallowance of client and prospect meals and there was no plan to change this.
The committee’s response to this was that the focus of the change in the TCJA is on entertainment expenses, with meals subject to separate rules that were not modified. There are no plans for changes. They also stated that further guidance will be provided in the ordinary course, including through regulations.
Veena Murthy legislative counsel for the Joint Committee on Taxation, stated that the 50 percent deduction for meals is still the law and the new prohibition is that meals considered entertainment are no longer deductible.
AICPA recommended to the IRS that they need to clarify under the TCJA that business meals with clients and prospects at restaurants are deductible, subject to the 50 percent cut. They also recommended that under the TCJA, business meals with clients and prospects in a restaurant before, after, or during a sporting or entertainment event, whether inside or outside the venue are deductible subject to the 50 percent cut.
Until further guidance is issued the AICPA is recommending that you document your business meals as if no tax reform took place. Substantiation of this includes the following:
- The name of the person you had the meal with.
- The name of the restaurant where you had the meal
- A short description of the business discussed
- If the meal costs $75 or more, keep the receipt that shows the name of the restaurant, number of people at the table, and an itemized list of food and drink consumed.
To provide guidance to clients until we hear further, here is a chart we hope you will find useful:
|Deductible or non-deductible for 2018|
|Description||100% deductible||50% deductible||0% deductible|
|Office Holiday Party for all employees & spouses||X|
|Meals for general public for marketing presentation||X|
|Team-building recreational event for all employees||X|
|Golf outing for all employees & spouses||X|
|Employee meals for convenience of employer||X|
|Employee meals for required business meeting||X|
|Meal served at Chamber of Commerce meeting||X|
|Meals while traveling away from home overnight||X|
|Meals with clients and prospects||X|
|Entertainment with clients and prospects||X|
|Year-end party with customers||X|
|Sporting event with customers||X|