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Meal Deductibility Under New IRS Guidance

The IRS has just issued long-awaited guidance regarding the deductibility of business meals under the Tax Cuts and Jobs Act of 2017. The Act fully eliminated the deductibility of entertainment expenses, while most business meals continue to be 50% deductible. However, it was not clear how this affected meals related to entertaining clients, referral sources, etc.

IRS Notice 2018-76 provides that taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary expense under §162(a) paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

If you have any questions regarding the new IRS guidance please contact your Gettry Marcus Advisor.

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