Update: IRS finalized and published these business expense regulations in the Federal Register, effective Oct. 9, 2020.
It’s about time! There’s finally more clarity to help your company correctly deduct certain business expenses on your tax returns.
IRS recently posted proposed regulations in the Federal Register that include more guidance on deducting costs for meals and entertainment.
Clearing up confusion
As you know, the Tax Cuts and Jobs Act (TCJA) got rid of deductions for entertainment, recreation and amusement expenses. But it wasn’t totally clear whether that included meal expenses, too.
In response, IRS issued Notice 2018-76 with transitional guidance on the deductibility of expenses. The proposed regs IRS just released would set this notice’s guidance in stone, as well as provide more details to help you get deductions right.
In short, the regs say you can generally still deduct 50% of food or drink expenses that are associated with your operations, including business travel.
It really all comes down to how the cost is incurred. For example, tickets to a sporting event are no longer deductible. But if an employee buys a client a hot dog and soda at the game, you can deduct 50% of the cost. However, if that food is included as part of the package for a club box, you get no deduction – unless charges get stated separately on the bill.
Of course, as prior to the TCJA, IRS clarifies that there’s still no deduction allowed for an expense unless:
- it’s reasonable (i.e., it’s not lavish or extravagant), and
- the company or employee is present when the food or drink is furnished.
Next steps
As CFO, you’ll want to be sure the rest of your team is aware that IRS is finalizing regs and there are some meal expenses you’ll still be able to take a deduction on.
A/P staffers especially should keep an eye out. They’re in the perfect position to flag expenses that come across their desks and fit that bill, so your company can conserve the most cash and remain in compliance.
A public hearing on the proposed regs is scheduled for April 7, 2020. And you can send comments on the topic to IRS until April 13, 2020.
