In a notice released on October 3, 2018, the IRS clarifies that taxpayers may continue to deduct 50% of food and beverage expenses associated with their trade or business.
The Tax Cuts and Jobs Act (TCJA) amended IRC Code Section 274 disallowing a deduction for expenses with respect to entertainment, amusement or recreation. The Act did not specifically address the deductibility of expenses for business meals.
DSJ provides clarification and outlines the Meals and Entertainment rules below and provides a few of the examples:
Taxpayer may NOT deduct entertainment, amusement or recreation expenses, even if associated with the active conduct of the taxpayer’s trade or business.
Examples of disallowed entertainment include, but are not limited to: entertaining at golf clubs, theaters, country clubs, sporting events, night clubs cocktail lounges, vacations or trips, and activities related solely to the taxpayer or the taxpayer’s family.
Entertainment does not include meals provided by an employer to an employee working overtime, a hotel room maintained by the employer for lodging of employees while in business travel status or an automobile used in the active conduct of trade or business even though also used for routine commuting or personal purposes.
Taxpayer may deduct 50% of an allowable business meal expense if:
- The expense is an ordinary and necessary expense under IRC Sec 162(a)
- The expense is not lavish or extravagant under the circumstances
- The taxpayer, or employee of the taxpayer, is present at the furnishing of the food or beverage
- The food and/or beverages are provide to a current or potential business customer, client, consultant or similar business contact
- Where food and/or beverages are provided during an entertainment activity, the food and/or beverage must be purchased separately or the cost of the food and/or beverage is stated separately from the cost of the entertainment on the invoice or receipt. The entertainment dis-allowance rule may not be avoided by inflating the charges for food and beverages.
Example: Taxpayer, Gigi, invites a business contact, Mary, to a Mets game. Gigi buys tickets for her and Mary. While at the game, Gigi buys cheese-steaks and beer for both her and Mary. The cost of the game tickets is not deductible as it is considered entertainment. The cost of the food and beverage, which were purchased separately from the game ticket, are not considered entertainment and therefore are deductible and subject to the 50% limitation under IRS Sec 274.
Example: Taxpayer, Bob, invites business contact, Roy, to a golf outing. Bob purchases the tickets for both of them. The price includes a round of golf and dinner after. The cost of the tickets, as stated on the invoice, include the food and beverage, which is not separately stated. Thus, Bob, may not deduct any of the expenses associated with the gold outing.
Other Meals Provisions
Taxpayer may deduct 50% of the cost of meals provided for the convenience of the employer. This was 100% deductible prior to TCJA. In 2025 these become 0% deductible.
Taxpayer may continue to deduct 100% of social and recreational meals and entertainment for employees, such as holiday parties.
Taxpayer may deduct 50% of the cost of on-sight cafeteria or executive dining room where meals are provided for the convenience of the taxpayer free of charge to the employees. This was 100% deductible prior to TCJA.