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In general, tax reform eliminated the deduction for expenses related to entertainment, amusement or recreational activities. With the new guidance, comes clarity for business owners on what can be deducted related to these activities, as well as how to treat the business deductions for food and beverages that remain deductible.
The final regulations generally kept the existing definition of entertainment. Similarly, the final regulations confirm the nine exceptions to entertainment expenses remain the same, which include:
It also clarifies “entertainment” does not include food or beverages unless they are provided at or during an entertainment activity, and their costs are not separately stated from the entertainment costs.
The final regulations apply the guidance in the proposed regulations to food and beverage expenses allowing taxpayers to deduct 50% of business meal expenses if it can meet the following criteria:
It also clarifies separate charges for entertainment-related food and beverages must reflect their actual cost, including delivery fees, tips and sales tax. Indirect expenses, such as transportation to the food, are not included in the actual cost.
Furthermore, food or beverage expenses for employer-provided meals at an eating facility do not include expenses for the operation of the facility, such as salaries of employees preparing and serving meals, and other overhead costs.
Doeren Mayhew’s tax advisors are here to help. Should you have any questions about how these final regulations impact your business deductions, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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