After the new law repealed deductions for entertainment expenses, many businesspeople figure their write-offs for treating customers or clients to meals are gone for good. But interim guidance handed down by the IRS provides some light at the end of the tunnel.
You may continue to deduct 50 percent of the cost of business meals if these conditions are met:
- The expense is an ordinary and necessary business expense.
- The expense isn't "lavish or extravagant" under the circumstances.
- You or one of your employees is present when the food or beverages are served.
- The food and beverages are provided to a current or potential business contacts.
- Any food and beverages provided during or at an entertainment activity are purchased separately or the cost is stated separately from the entertainment cost on a bill, invoice or receipt.
Here are three scenarios you may find yourself in and how the new business meals rules apply:
- You travel to a distant location on business and stay overnight. While you're at the hotel, you pay for your meals. Despite the new law clarifications, you can still deduct 50 percent of the cost of the meals when you're away from home on business.
- After you wrap up a business deal, you treat a client to dinner and then a show. Although you can no longer deduct the entertainment following the dinner, it appears you may write off 50 percent of the entire meal cost.
- Instead of a show after a business meeting, you get tickets to a big game in a luxury box. If the cost of the tickets includes food and beverages, no deduction is allowed. But you can claim a 50 percent deduction for food and beverages invoiced separately.
The IRS is expected to issue proposed regulations with more details soon. Until then, you can rely on the interim guidance. Call if you have questions about your business deductions.
