Are Business Meals Still Tax Deductible?

• July 17, 2018
• Amanda Garnett

Earlier this year, we discussed how entertainment expenses will no longer be deductible starting in 2018 as a result of tax reform.  This includes sports tickets, theater tickets, hunting trips, and certain other outings where financial institutions connect with their customers.

Because of the change to entertainment expenses, there has been a lot of debate in the tax community regarding whether business meals are effectively a form of entertainment and therefore also no longer deductible under the new law.

Meals Not Associated with Entertainment

The CLA National Tax Office recently published an in-depth article on this issue.  We believe that most meals not directly associated with entertainment will still be tax deductible, but additional guidance is still needed from the IRS in certain areas.

The table below highlights some of the complexity we are seeing related to business meals.

Category	Example	Pre-Tax Reform Treatment	Post-Tax Reform Treatment
Snacks furnished on premises for employees	Break room donuts and coffee	100% Deductible	More guidance needed. Likely 50% deductible in 2018, Non-deductible starting in 2025.
Meals as part of a nondiscriminatory recreational or social activity	Dinner at the company’s annual holiday party	100% Deductible	100% Deductible
Meals during business travel	Dinner on the way to a conference	50% Deductible	50% Deductible
Meals at business meetings of employees, stockholders, and directors	Business lunch for the board at the local restaurant.	50% Deductible	50% Deductible
Meals at a business meeting with a customer	Breakfast at a diner to discuss a customer’s recent loan application	50% Deductible	50% Deductible
Food made available to the general public	Refreshments at a branch open house	100% Deductible	100% Deductible
Convenience of the employer meals	Lunch brought into the bank for the tellers due to a staffing shortage	100% Deductible	More guidance needed. Likely 50% deductible in 2018, Non-deductible starting in 2025.

Meals Before, During, or After Entertainment

In most cases, we do not believe that meals constitute entertainment, but there are cases where meals accompany or closely relate to entertainment and in those situations whether or not the meal will be deductible is still open to IRS interpretation.

If a loan officer and a customer attend a baseball game, discuss outstanding loans, and eat dinner at the ball park, whether the cost of the hotdogs and sodas will be 50% deductible or disallowed as entertainment isn’t clear.

The AICPA has asked the IRS to provide additional guidance and has recommended that the IRS allow meals that are billed separately from entertainment to remain deductible but guidance has yet to be issued.

Keeping the Details Straight

We recommend that financial institutions set up several different general ledger accounts to ensure that their meals and entertainment related expenses are adequately tracked for tax purposes.  At a minimum, we would recommend separately tracking:

• Non-Deductible Entertainment Expenses
• 100% Deductible Business Meals
• 50% Deductible Business Meals

Documentation should also be maintained regarding the business purpose of each meal, who attended from the company, and which customers were in attendance to ensure there is adequate support in place in case of a future IRS audit.

Next Steps

Navigating the changes resulting from tax reform is complex.  CLA is here to help.  Please contact us.

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