WHICH MEAL AND ENTERTAINMENT EXPENSES REMAIN DEDUCTIBLE UNDER THE TCJA? The Tax Cuts and Jobs Act (TCJA; P.L. -outlays for meal and entertainment. In practical terms, meal expenses were treated as a subset of entertainment expenses and under the Tax Reform Act of 1986 (’86 TRA), were subject to the “directly related to” or “associated with” business requirements.
Com. Rpt. to the ’86 TRA, PL 99-514, 10/22/86, General Explanation of the Tax Reform Act of 1986, JCS -10-87, May 4, 1987, pp. The deduction for meal and entertainment expenses was limited by 50% of the normally deductible amount of the expense. The TJCA also provides, generally, that only 50% of otherwise allowable expenses for meals-food and beverages-are allowable as a deduction.
After signing up a major client, the client is taken by an lawyer to a nightclub, or even to a wearing event. Under prior law, this is deductible as entertainment “associated with” the energetic conduct of the trade or business (if sufficient records of the function were kept) and 50% of the cost was deductible.
Under the TCJA, there is no deduction for the cost of such entertainment. The taxpayer (or a worker of the taxpayer) is present at the furnishing of such food or drinks. These additional requirements for foods weren’t transformed by the TCJA. Is a “Business Meal” Deductible under the TCJA? The TCJA does not explain the tax treatment of a cost commonly described as a “business meal”. The TCJA retains intact Code Sec. Under long-standing regs, a worker expense that’s reimbursed by the company is treated as made under an responsible plan only if (among other conditions) it satisfies a business connection necessity.
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Under this requirement, the trouble must be produced for an in any other case deductible business expense that is paid or incurred by an employee in connection with performing services as a worker of the employer. Amounts reimbursed under an accountable plan are tax-free to the employee. The company, on the other hand, deducts the reimbursement, subject to whatever deduction limitations connect with the underlying expenditure (e.g., 50% deduction limit on foods).
If the business connection requirement isn’t met, the expense is automatically treated as made under a nonaccountable plan. Reg. § 1. The employer deducts the reimbursement amount as settlement (supposing total payment paid to the worker is “reasonable”). Beneath the Code Sec. 274 rules as modified by the TCJA, the employer’s deduction for an amount paid that’s treated as settlement to the employee-e.g., a quantity paid under a nonaccountable plan-isn’t subject to the overall Code Sec. 274(a) disallowance guideline, the Code Sec.
274(k) special requirements for business foods, or the Code Sec. 274(n) 50% deduction limit on meals. Code Sec. 274(e)(2)(A), Code Sec. An employee takes a client to a “business meal” to discuss a pending sale and pays the bill with a company provided credit card. He well-timed substantiates the expense completely to his employer (time, place, amount, business purposes, plus receipts). If the function occurred in 2017, the whole reimbursement was treated as made under an accountable plan and was tax-free to the employee. The company deducted 50% of the price.