On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA). There are many changes under the new law that impact businesses. One in particular that business owners (both large and small) need to be aware of is new limitations on the deductibility of meals and entertainment expenses.
Prior to the passage of the TCJA, you could deduct 50% of business-related meals and entertainment and 100% of meals provided as a “fringe benefit” to employees by the employer. However, that all changed as of January 1, 2018.
Entertainment expenses, even if directly related to or associated with, substantial business discussions, can no longer be deducted. These expenses include tickets to take a client to a sporting or other event, deductions for skyboxes and suites as well as meals during entertainment activities. Finally, payments for membership dues for any club organized for business, pleasure, recreation or other social purpose, have been eliminated as an expense for tax purposes.
While businesses will still be allowed to deduct 50% of meals while traveling or when discussing business with clients or prospects, the deductibility for certain meal expenses has been changed under TCJA. Meals provided through an in-house cafeteria or otherwise for the convenience of the employer as a fringe benefit will now be limited to a 50% deduction. As of 2026, this deduction too will be completely eliminated.
The following table summarizes the deductibility of meals under various scenarios (items marked in red denote changes resulting from the enactment of TCJA):
|Meals without substantial business discussions||Nondeductible|
|Meals with clients/prospects during which business is conducted||50% deductible|
|Reimbursements for employees’ meal expenses while traveling on business||50% deductible|
|Meals at a sporting event or other entertainment activity||Nondeductible|
|Meals provided on the premises for the convenience of the employer (e.g., overtime meals)||50% deductible (until Jan. 1 2026)|
|Free meals to employees from an on-site dining facility||50% deductible (until Jan. 1 2026)|
|Holiday party or similar recreational/social activities primarily for the benefit of employees (including expenses for facilities)||100% deductible|
How MBAF Can Help
We can help your business plan for proper compliance with the new laws regarding deductibility of meals and expenses by helping you to set up your ledgers and record-keeping accordingly. With changes in the laws, it may not be so clear to business owners as to what meals and entertainment expenses qualify as 50% deductible, which are 100% deductible, and which are now non-deductible.
We can literally help your business “keep the record straight,” while still helping you to maximize your deductions, and legally minimize your tax obligations under the new laws.
Compliance with and understanding the changes and implications of the Tax Cuts and Jobs Act can be very complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting Specialists, or call us at 1-800-239-1474.