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Meal Expenses: What's the Story?


The Tax Cuts and Jobs Act made changes to deductions for meals. In fact, it eliminated the deduction for any expenses related to activities that used to be considered entertainment, amusement or recreation.

But you'll be glad to hear that you may continue to deduct 50 percent of the cost of business meals — and here are the provisos:

  • You need to be at the business meal. The food or beverages shouldn't be lavish or extravagant.
  • Meals may be provided to a current or potential business customer, client, consultant or similar business contact.
  • Food and beverages provided during entertainment events won't be considered entertainment if purchased separately from the event.

Note that prior to 2018, a business could deduct up to 50 percent 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.

For further guidance, you should read IRS Notice 2018-76. For example, it explains in detail the concept of "entertainment," which may seem intuitive, but isn't. The Notice says that "entertainment" does not include activities which, although satisfying personal, living or family needs of an individual, are clearly not regarded as constituting entertainment. These activities might be reimbursed by an employer to an employee, or might include a hotel room maintained by an employer for lodging of employees while in business travel status.

However, if a business provides a hotel room or an automobile to an employee who is on vacation, that would constitute entertainment of the employee.

Do not try to get around the "separation" guidance — the IRS is strict here. The Notice gives an example of entertaining clients in a luxury suite at a basketball game. The cost of the tickets and suite is entertainment and not deductible. If the food provided in the suite is included in the suite rental and is not separated out, it is not deductible either.

However, if the invoice does separate out the cost of the food, it will be deductible to the extent allowed.

This is not an invitation to manipulate an invoice so it puts a disproportionate amount of money into the "food" column. The Notice also specifically warns businesses against trying to circumvent the entertainment disallowance rule by inflating the amount charged for food and beverages.

The IRS continues to issue additional guidance providing clarification of when business meal expenses may be deducted, with the latest guidance issued in February of 2020 – REG-100814-19.


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Kim & Lee
Kim & Lee, LLP
2305 W. 190th St. Suite 100
Torrance, CA 90504
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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