On October 3, 2018, the IRS issued Notice 2018-76Expenses for Business Meals Under § 274 of the Internal Revenue Code, stating its intent to publish proposed regulations under Internal Revenue Code Section 274, which was modified by the Tax Cuts and Jobs Act (TCJA). Under the Tax Cuts and Job Act, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule will now also apply to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be nondeductible. Businesses should keep the new rules in mind as they plan their meals and entertainment budgets.

In the IRS Notice 2018-76, it clarifies taxpayers may deduct 50 percent of an otherwise allowable business meal expense if all of the following conditions are met:

  1. The expense is considered ordinary and necessary under §162(a) and is paid or incurred by the taxpayer during the taxable year while carrying on a trade or business
  2. The expense isn’t lavish or extravagant under the circumstances
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages
  4. The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost is stated separately from the cost of the entertainment on one or more bills, invoices or receipts

If you’re having trouble navigating the meals and entertainment rules under the TCJA, contact one of our Tax Experts at (888) 388-1040.