Meals Deduction And Tax Reform

In our recent article, Entertainment Expenses: How Will Your Business be Impacted? We will only see the full impact to the entertainment industries and the overall business development culture over a couple of years as businesses reevaluate the feasibility of their annual entertainment finances. Even if the business decision is that the additional after-tax cost of entertainment is a necessary cost of growing the business, look out for more stringent inner policies to keep costs at controllable levels.

Yet the changes to the meals deductions may have a far more profound influence on just how we do business. How will your business procedures be inspired by the next changes? Many companies provide meals to employees at cafeterias on the business premises. Under prior tax law, these meals were granted special treatment compared to many other benefits provided by the employer, the only requirements being that the foodstuffs are provided for the capability of the employer on the business premises.

The value of the meals provided had not been included in the employee’s income and the company could completely deduct the expense of the meal. Under the new tax rules, these meals will be exempt from employee income edition still but would be only 50% deductible to the company. Not only companies with free cafeterias will be impacted.

For example, inner lunch conferences where food is sent to the company will also be limited to 50% deductible. Inviting a client or prospect for lunchtime or drinks to discuss business prospects has been a classic business development activity for decades. The cost of these foods for the businessperson and your client was 50% deductible to the payer. Is the expense of these business development meals considered entertainment expense or meals expense? Only a semantics issue Previously, the new tax law has made this question very pertinent. Entertainment expenses are not deductible, but meals are 50% deductible.

On the surface, the answer seems apparent. A closer look at previous IRS assistance shows the answer is more nuanced. Previously released treasury regulations defined entertainment to add the cost to satisfy a personal need of an individual such as providing food and beverages, a hotel suite or an automobile to a business customer or his family.

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IRS FAQs under Revenue Ruling 63-144 frequently refers to meals purchased for business customers as entertainment. The 1986 tax reform further included meals in the business association and substantiation rules constant with entertainment. The conference agreement under the 2017 tax reform confirms meals are 50% deductible if associated with operating their trade or business, but only gives one of these: meals consumed by employees on work travel.

What can you do Now? Get in touch with your taxes advisor at Apple Growth Partners to discuss these visible changes. Keep the eyes out for further guidance to be sent out by Apple Growth Partners upon release by the IRS. The info contained in this informative article is current through the released date and could change when regulations and other guidance are issued. Content has been vetted by Apple Growth Partners’ internal tax reform team of certified CPAs. For more information concerning this content, or any other matters related to tax reform, please contact your Apple Growth Partners consultant.

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