The Tax Cuts and Jobs Act enacted by Congress last year made major changes to the longstanding deductions for business-related entertainment and meal expenses. Starting in 2018, most business-related entertainment expenses are not deductible. However, the deductibility of certain meals is unclear.

Continue to find out what entertainment expenses are allowable tax deductions moving forward.

Entertainment

For decades, entertainment, amusement or recreation costs incurred for the purpose of generating business income or providing other specific tax benefits was an allowable tax deduction. The Tax Cuts and Jobs Act eliminated all such deductions starting in 2018. (IRC Sec. 274(a).)

Thus, you may no longer deduct country club or skiing outings, theater or sporting event tickets, entertainment at nightclubs, hunting or fishing or similar trips, or vacation trips. This is so even if such expenses result in a specific business benefit such as landing a new client.

Nondeductible entertainment expenses also include membership fees and dues for any club organized for business, pleasure, recreation, or other social purposes, and any entertainment facility fees.

However, a few types of entertainment expenses remain wholly or partly deductible:

• 100 percent of the cost of entertainment provided as part of a company recreational or social activity—for example, a picnic or holiday party for your employees
• 100 percent of entertainment expenses pertaining to business meetings of employees, stockholders, agents, or directors—for example, the costs of renting a conference room in a hotel for such a meeting
• 100 percent expenses for entertainment goods, services, and facilities that you sell to customers
• 100 percent expenses for goods, services, and facilities you or your business makes available to the general public
• 100 percent of the cost of any entertainment or recreation expenses included as part of the employee’s compensation and reported as such on the employee’s W-2.

Meals

Business-related meals have long been a deductible expense. However, Congress may have unintentionally eliminated deductions for many types of meals when it enacted the Tax Cuts and Jobs Act.

Meals with Clients, Prospects, And Others:

Previously, business-related meals with clients, prospects, employees, business associates and others at restaurants and other venues away from the workplace were considered a valid tax deduction. As long as that meal was either “directly related to” or “associated with” the active conduct of the taxpayer’s trade or business.

These conditions could be satisfied if you had a bona fide business discussion, negotiation, meeting, or other business transaction before, during, or after the meal.

If the discussion occurred during the meal, however, you had to have a reasonable expectation that you would get some specific business benefit—for example, obtaining a new client. Then either condition described above, with proper documentation of the cost and purpose of the meal, could be deducted.

When the Tax Cuts and Jobs Act eliminated the deduction for business-related entertainment, it also appeared to remove deductions for client and prospect meals. Since such meals were deducted as an entertainment expense.

However, IRS and Congressional officials have indicated that this was not intended. Thus, it appears likely that action will be taken to retain deductions for client and prospect meals.

For now, continue tracking of expenses for such meals in the expectation that the deduction will be restored.

Other Meals: Other types of meals that remain deductible after the Tax Cuts and Jobs Act include:

• 50 percent of the cost of meals you consume while you travel for business—this is a business travel expense deduction, not an entertainment deduction
• 100 percent of the cost of meals provided to employees as part of a company recreational or social activity—for example, food for an employee picnic or holiday party (the activity may not include only highly compensated employees)
• 50 percent of meal expenses for business meetings of employees, stockholders, agents, or directors. Food for offsite meetings at hotels or other places business meetings are normally held are typical examples. Food purchased at restaurants does not qualify.
• 50 percent of the cost of meals served to employees on business premises—for example, donuts, bagels, coffee, or even an employee cafeteria
• 100 percent of the cost of meals sold to customers—for example, food at an event or workshop patrons pay to attend (food part of the cost)
• 100 percent of the cost of meals made available to the general public—for example, a realtor provides free snacks at an open house, or a financial adviser puts on a free educational dinner seminar for potential clients.

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