Nonprofit Resources


IRS Clarifies Deductibility of Business Meals

The Tax Cuts and Jobs Act (TCJA) passed in December 2017 eliminated the deduction for any expenses related to activities considered to be “entertainment, amusement, or recreation.”

Since then, we’ve received a number of questions about how reimbursement for meals should be treated. Could a meal with a donor, for example, still be reimbursed on a tax-free basis? And should you use a credit card issued by the organization, rather than a personal credit card?

The IRS has now issued guidance conclusively stating that meals are deductible (Notice 2018-76). The rules for deducting meals have not changed unless the meal occurs in the context of entertainment, such as at a sporting event or a theater.

From Notice 2018-76:

Under this notice, taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary expense under §162(a) paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

This guidance draws no distinction on the method of payment.

Note that the rules relating to business meals (e.g., dinner money provided to an employee working overtime or meals provided for an employee traveling on work-related business) also remain unchanged.

Please contact us with any questions.

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