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Tax Reform - Meals & Entertainment - Update

Ron Skalberg
Business Meals

On January 12th, 2018, we posted Tax Reform – Meals & Entertainment, which addressed Tax Reform’s elimination of the deduction for most entertainment expenses.

We also discussed our initial impression of whether the deduction for certain business meals was also lost with Tax Reform.  Since that time there have been a number of encouraging developments that lead us to change our opinion from the deduction being eliminated to its continuing existence under Tax Reform. 

Two of those developments are:

  • Insights from the Joint Committee on Taxation (JCT) and others in the know make it relatively clear that the legislative intent was to leave the 50% client, prospect and other business-related meals deduction intact, but the actual law does not state this.  However, since the new law does appear to eliminate the deduction by the removal of the Code Section that seems to have provided for it, it may take some sort of legislative action to resolve the issue.
  • At the American Bar Association (ABA) Section of Taxation meeting in Washington, D.C. this past May, the IRS stated that the 50% deduction for business meals is still in place as long as the meals are not “lavish.”  This is further informal evidence that the 50% client, prospect and other business-related meals deduction is intact.  We’re hopeful that official legislation, guidance, and clarification will come out later this year on this and a number of other Tax Reform issues.

So it does seem that the deduction will survive.  However, it will be more important than ever for you to maintain contemporaneous documentation – who, why, when, where and how much – for your deductible business meals.

For our business clients, it’s also important that you create a separate account in your bookkeeping software to segregate any non-deductible entertainment expenses (this will likely include meals where no business is conducted during the meal, but we are awaiting clarification from the IRS on this).

The following links are helpful recaps of Tax Reform’s Meal & Entertainment changes…

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