Ask the Advisor: Meal and Entertainment Deductions

By Mark Kruczek, CPA, MST – Shareholder, Doeren Mayhew CPAs and Advisors

Q.  Even though entertainment expenses are no longer deductible, does the food and beverage expenses incurred while entertaining customers remain 50 percent deductible?

In short, yes. After much uncertainty surrounding this time-honored, and legitimate business practice of “wining and dining” customers, the Internal Revenue Service provided some much-needed guidance on the new post-tax reform regulations.

Although the Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses, food and beverages purchased while entertaining clients continue to be 50 percent deductible under the longstanding requirements. There is a catch – they do have to be purchased separately or stated separately on the bill, invoice or receipt.

For example, if you take a customer to a ball game and purchase tickets in a suite where food and beverages are provided, 50 percent of the food and beverage costs are deductible if stated separately on the bill, invoice or receipt, while the rest of the ticket cost is a nondeductible entertainment expense.

It’s important to remember that the longstanding rules for entertainment-related meals continue to apply—namely, to be 50 percent deductible. In order to qualify for the deduction, the below must be true:

• The expenses must not be lavish.
• You or one of your employees must be present at the event.
• The person being entertained must be a current or potential business customer, client, consultant or similar business contact.
• Business must be conducted during the event (or immediately before or after) and the time, place, business purpose and business relationship of the attendees must be documented.

Have a Question?

For more information on meal and entertainment deductions, contact our tax advisors today.