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IRS Guidelines on the Deductibility of Meals Purchased in an Entertainment Context

The IRS has provided new guidance on the deductibility of expenses for business meals that are purchased in an entertainment context.

A deduction is allowed for ordinary and necessary expenses paid or incurred in carrying on any trade or business.  Taxpayers may deduct 50% of an otherwise allowable business meal expense if it meets the following requirements:

  • Expense is ordinary and necessary and paid or incurred during the tax year in carrying on any trade or business
  • It is not lavish or extravagant
  • Taxpayer or employee of taxpayer is present for the food/beverage
  • Food and beverage is provided to a current or potential customer, client, consultant or other business contact
  • For food and beverages provided during or at an entertainment activity – food and beverage are purchased separately from the entertainment or is separately stated on a separate bill or receipt

Examples:

  1. Mr. Lawyer invites Mr. Banker, a business contact, to a Phillies game. Mr. Lawyer buys the tickets for himself and Mr. Banker to attend the game. While at the game, Mr. Lawyer buys Mr. Banker cheesesteaks and sodas to enjoy while watching the game. The baseball game is defined as entertainment, therefore the cost of the game tickets are not deductible by Mr. Lawyer.  The cheesesteaks and sodas were purchased separately from the game tickets, therefore the cost of the food and beverage result in a 50% expense deduction for Mr. Lawyer.
  1. Mrs. CPA invited Mr. Client to a Sixers game. Mrs. CPA purchases tickets for her and Mr. Client to attend the game in a suite, where there is access to food and drinks. The game tickets and the food and beverage costs were stated on the same invoice. Since the tickets and food/drinks were included on the same invoice, Mrs. CPA may NOT deduct any of the expenses associated with the Sixers game with Mr. Client.

Check back for additional guidance to be released by the IRS in the future and be sure to contact us with any questions you have regarding meals and entertainment!

Kayleen Kane

kkane@stephanoslack.com

610-687-1600

November 6, 2018