IRS Issues Guidance On What Business Meals Are Deductible

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I often receive questions regarding what is a deductible business entertainment expenses, particularly with regard to business meals.  The IRS has recently issued guidance on this issue in light of some of the changes brought about by the 2018 tax law changes.  I hope you will find these examples helpful.
EXAMPLE ONE
Aaron invites Brad, a business contact, to a baseball game. Aaron purchases tickets for himself and Brad to attend the game. While at the game, Aaron buys hot dogs and drinks for himself and Brad. The baseball game is entertainment. Thus, the cost of the game tickets is a nondeductible entertainment expense. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense and is not subject to the IRC section 274(a)(1) disallowance rule. Therefore, Aaron may deduct 50% of the expenses associated with the hot dogs and drinks purchased at the game.
EXAMPLE TWO
Chris invites Dan, a business contact, to a basketball game. Chris purchases tickets for himself and Dan to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages. The basketball game is entertainment. Thus, the cost of the game tickets is a nondeductible entertainment expense. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages also is an entertainment expense that is subject to the IRC section 274(a)(1) disallowance rule. Therefore, Chris may not deduct any of the expenses associated with the basketball game.
EXAMPLE THREE
Assume the same facts as in Example #2, except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As in Example #2, the basketball game is entertainment and, thus, the cost of the game tickets, other than the cost of the food and beverages, is a nondeductible entertainment expense. However, the cost of the food and
beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense and is not subject to the IRC section 274(a)(1) disallowance rule. Therefore, Chris may deduct 50% of the expenses associated with the food and beverages provided at the game.
If you have any questions, please contact Steve Siesser at ssiesser@verizon.net
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