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IRS Gives Businesses a Break for Meals with Clients

The TCJA, passed in December of 2017, eliminated the business expense deduction for entertainment.  Since that time there has been a great deal of discussion on what was included in the definition of entertainment, and many people believed that the deduction for meals with clients was included and no longer deductible.  On October 3, 2018, IRS issued Notice 2018-76, giving guidance that the business expense deduction for client meals is largely unchanged from prior law.  

In the announcement the IRS stated that taxpayers may continue to deduct 50% of the cost of business meals if the taxpayer is present and the meal is not lavish or extravagant.  This would include meals for current or potential customers and clients.   They further stated that food and beverage at an entertainment event won’t be considered entertainment if purchased separately.  So, for example, a golf outing would be considered entertainment and nondeductible, but food and beverages purchased after the round would be 50% deductible.  On the other hand, when taking a client to a sports event in a box where food is provided as part of the price, the entire cost would be nondeductible.

They will soon issue regulations further clarifying the new rules, but until then this notice can be relied upon by taxpayers.



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