Dive Brief:
- The IRS has released new guidance for employers on the business expense deduction for meals and entertainment following changes made by the 2017 Tax Cuts and Jobs Act. The agency said it plans to propose formal regulations on the changes, but that employers can rely on the guidance in the meantime.
- The law eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation, the IRS said in a statement. Prior to 2018, businesses could deduct up to 50% of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business, the agency explained.
- Businesses may continue to deduct 50% of the cost of business meals if the taxpayer or an employee of the taxpayer is present and the food or beverages are not considered lavish or extravagant, the IRS said. The meals may be provided to a current or potential business consumer, client, consultant or similar business contact. Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event, the agency noted.
Dive Insight:
The Tax Cuts and Jobs Act promised to affect HR in several ways. In the immediate aftermath, some increased 401(k) contributions while others announced one-time bonuses. Others opted to make modest increases to wages.
But the effect of some of the changes is just beginning to be seen. Earlier this month, the U.S. Treasury implemented a provision that gives employers a tax credit for paying workers during family and medical leaves. The department's guidance explains how to calculate the credit, and notes that only leave provided for employees who earned $72,000 or less in the previous year qualify for the credit.
The deductions examined in the IRS guidance have been a major point of discussion, according to accounting and consulting firm Hertzbach & Company. Specifically, employers were left wondering whether certain business meals associated with entertainment — food at a baseball game, for example — would automatically be considered entertainment expenses and, therefore, non-deductible as well. Assuming threshold requirements are met, it appears that employers now have some assurance that such food is 50% deductible.