Nicholas J. Pennewell, CPA-Where Every Penny MattersOn by
As areas of the Tax Cuts and Jobs Act (TCJA), there have been changes to the treatment of certain business-related expenses, including travel, business meals, and entertainment. As I had written previously this year, some tax specialists believe that the language in the TCJA created dilemma, asking the Internal Revenue Service (IRS) for clarification with this issue.
At enough time, I recommended, “Don’t order the lobster at this time” because the guidelines were still unclear. Now, you can finally order the lobster: The IRS has issued transitional help with business meals and entertainment. Under previous law, the guideline was that you could deduct 50% of entertainment, enjoyment, or recreation expenses straight related to your trade or business.
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Under the TCJA, there is absolutely no deduction for any item generally thought to constitute entertainment, amusement, or recreation. The Regs explain that “entertainment” shouldn’t be interpreted to suggest only the entertainment of others, or that an item of expenditure for entertainment should be characterized as advertising or PR to circumvent the test.
The Regs also make clear that the taxpayer’s trade or business matters. For example, my going to a baseball game would be considered entertainment, but it would not be considered entertainment for a scout to wait a casino game in a specialist capacity. The TCJA didn’t change the definition of entertainment. Where things get difficult, though, is whether providing food and drinks may constitute entertainment, particularly if food and drinks were tied to an activity regarded as entertainment. Time For Income Investors To Get Real? Accessing Real Assets With Closed-End Funds.
Can Bonds Disrupt Your Retirement? Under the previous law, expenses for meals were generally deductible at 50% as long as they were linked to business and normally fulfilled the deductibility requirements. But the loss of the entertainment deduction still left some taxpayers puzzled. What goes on, for example, if meals are linked with nondeductible entertainment like supper at a lunch or show throughout a ballgame? The IRS intends to publish proposed regulations clarifying when business meal expenses are nondeductible entertainment expenses so when they are 50% deductible expenses.
Until those rules are released, however, taxpayers can rely on assistance issued in Notice 2018-76 (downloads as a pdf). That assistance allows taxpayers to keep to deduct 50% of foods as long as the trouble is regular and essential to keep on a trade or business. As before Just, the costs can’t be lavish or extravagant under the circumstances (context issues). Further, the taxpayer or an employee of the taxpayer must be present when the food or drinks are offered (you can’t just offer up a smorgasbord and walk away). But think about drinks and food provided during or at an activity considered to be entertainment?
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