Recent guidance from the IRS indicates that business meals will continue to be 50 percent deductible following tax reform. Prior to Notice 2018-76, there was concern that no deduction would be allowed for business meals.
Businesses are allowed a 50 percent deduction for amounts paid for meals associated with the active conduct of the taxpayer’s trade or business. The Tax Cuts and Jobs Act (TCJA) removed the definition for “business meal” from the law. Because of this, there was some question about whether business meals would remain 50 percent deductible or if the entire deduction would be lost. Notice 2018-76 indicates that the IRS will publish regulations that answer two of the most common questions regarding business meals and provides the following interim guidance:
- Meals with clients, customers, or prospects with business discussions will continue to be 50 percent deductible as business meals.
- Taxpayers will be allowed a 50 percent deduction for meals purchased at an otherwise nondeductible entertainment event, such as a sporting event, as long as the meals are separately stated on any invoice or receipt.
Based on the recent guidance, the following is a reasonable understanding of the deductibility allowance of business meals: