2017 Tax Cuts and Jobs Act (TCJA): Meals, Entertainment & Unreimbursed Business Expense Deductions

Many businesses consider the occasional meal with customers, business referrals and prospective customers necessary costs of doing business. The same goes for taking business associates or even employees out to lunch. It’s easy to rationalize these should be deductible as business expenses, however, due to changes in the tax law, many of those expenses may not be deductible.

Keep reading to get a better understanding of the deduction limitations for meals and entertainment and how taxpayers will be affected by personally paying for business expenses that aren’t reimbursed by their employer.

Entertainment Expense Deduction Limited

It is clear under TCJA, ‘entertainment’ expenses incurred on or after January 1, 2018 are no longer allowed as a deductible business expense. Under old tax law, your company could deduct 50 percent of the cost of entertainment if specific conditions were met. However, Congress has eliminated the 50 percent deduction for most business-related entertainment expenses.

Meals Expense

One of the most controversial areas of the new tax law is whether ‘meal’ expenses are considered an entertainment expense or not. Some commentators suggest that business meals with current clients or prospects are considered a nondeductible entertainment expense. But, after reading the House bill and the Senate amendment the intent was to allow taxpayers the 50% limitation for food and beverage expenses associated with operating its trade or business. We just aren’t sure if business meals that appear to have a bona-fide business purpose will be subject to the 100% limitation or not. At this time, Greenwalt CPAs is waiting for more guidance to be published regarding this tax deduction limitation.

Unreimbursed Employee Business Expenses

For individuals, TCJA eliminates the deduction for unreimbursed employee expenses on Form 1040, Schedule A for 2018 through 2025. Unreimbursed employee business expenses may include job travel, union dues, job education, job meals and entertainment. This means an employee who spends money out of his or her own pocket driving for work or paying for their own dues will no longer be able to deduct these expenses.

An option for these employees is to have their employer reimburse them for these expenses, which can be deducted as a normal business expense. The money received from the employer for these reimbursed expenses is not reportable income if paid under an ‘accountable plan’, as long as, the employee provides the employer with evidence of all business-related expenses (mileage logs, receipts, et cetera). Without an ‘accountable plan’ to substantiate the business-related expenses incurred, the money from the employer would be taxable income to the employee.

Contact Us

Please call our office to talk to your tax advisor about how your company’s typical meal and entertainment expenses fare under the new limitation rules and/or discuss changes to your employee reimbursement and recordkeeping policies.