This is one of those, “I thought everybody already knew about it,” articles. Since Jan. 1, business meals have been 100% deductible again. Warning, this only lasts until Dec. 31, 2022 and then the carriage turns back into a pumpkin.
The 2017 Tax Cuts and Jobs Act (TCJA) eliminated tax deductions for business entertainment, you could still write off certain meals at 50%. We’ve been telling our clients, when you take a business contact out to something like a sporting event, to separate out the meals-related costs and pay them separately. That way, you can at least get a 50% deduction for some part of the business-related event.
Under the new Consolidated Appropriations Act (CAA) that passed in December, Congress (bipartisan by the way) temporarily raised the deduction for meals portion only to 100%. You still cannot deduct other entertainment related costs.
Would somebody please explain to me why Congress got a wild hair (and it was a Republican-controlled Congress back in 2017…I pick on any political part that does stupid things) and decided that meeting with a business contact at any other place than a business office makes it not a legitimate business expense?
IRS has issued long-standing guidelines on what makes a legitimate deductible business meal.
1. It must not be lavish or extravagant under the business-related circumstances. (If you are a poor CPA, taking a client to the Charthouse and paying $250, that might be lavish. But if you are a Kentucky Derby horse breeder, taking a potential buyer of a multi-million dollar racehorse out for the same Charthouse $250 meal, that would most likely be acceptable.)
2. The taxpayer must be present at the meal. (duh!)
3. The meal is considered ordinary and necessary for carrying out business.
Just to make sure you get the full deduction you are entitled to, the tax deduction includes the cost of the food and beverages, sales tax, delivery charges (if any), and the tip.
The IRS recently issued a clarification. They consider the temporary 100% deduction to only apply to qualified restaurants, not sporting events food vendors, etc.
Remember, that is not a binding law or regulation, that is just an indicator of how the IRS would treat deductibility or not if you were audited. You can always appeal an IRS audit and in many cases, you could win.
Did you hear? Deut 2:6a says, “You shall purchase food from them for money, that you may eat.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.