The Tax Cuts and Job Act (TCJA) enacted extensive changes to the deductibility of meals and entertainment expenses for companies. If you are in the business of entertaining your clients and customers, you will want to know about these changes!
Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Further, 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, entertainment expenses paid or incurred after December 31, 2017 are no longer deductible. Employer-provided meals and meals provided for the convenience of the employer are limited to a 50% deduction. After 2025, the cost of meals provided on the employer’s premises will be nondeductible.
Summary of the changes made under the TCJA from 2017 to 2018
|2017 Expenses (Old Rules)||2018 Expenses (New Rules)|
|Office Holiday Parties Summer Office Picnic||100% deductible||100% deductible|
|Entertaining Clients||~50% deductible ~ Even tickets, 50% deductible for face value of ticket; anything above face value is non-deductible ~ Tickets to qualified charitable events are 100% deductible||~ Meals - 50% deductible ~ No deduction for entertainment expenses|
|Employee Travel Meals||50% deductible||50% deductible|
|Meals Provided for Convenience of Employer||100% deductible provided they are excludible from employees’ gross income as de minimis fringe benefits; otherwise, 50% deductible||50% deductible (nondeductible after 2025)|
|Fringe Benefits||~ Business could deduct the cost of employee parking, transit passes and bike commuting reimbursements, and employees could exclude the benefit from income. ~ Employee achievement awards could consist of anything within a dollar limit of $400 per award and $1,600 for all awards to the employee for the year.||~ Businesses can no longer deduct the cost of employee parking and transit passes (bike commuting reimbursements are still deductible), but employees can still exclude the benefit from income, except bike commuting reimbursements. ~ Employees achievement awards must be tangible personal property and not cash, gift cards, coupons or certificates, nor tickets, meals, vacations, lodging or stocks and bonds. The dollar limits remain unchanged.|