Meal & Entertainment Changes Under Tax Reform

The new tax act made changes to the deductibility of certain business meals and entertainment expenses. Under the act, entertainment expenses incurred or paid after Dec. 31, 2017 are nondeductible unless they fall under the specific exceptions in Code Section 274(e). One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees” (e.g, office holiday parties are still deductible). Business meals provided for the convenience of the employer are now only 50% deductible, whereas before the act they were fully deductible. Without further action by Congress, those meals will be nondeductible after 2025.

Businesses must continue to separately account for meals and entertainment expenses by category in order to properly apply the appropriate limitation. For 2018, they should have separate accounts for meals and entertainment expenses. “Entertainment meals” also require further analysis because unless business is conducted during the meal – no deduction is allowed. The chart below contrasts the proper treatment for many types of meals and entertainment expenditures both before and after the act.