Written by Michelle Kane, Solo PR Pro Premium Member and Head Honcho of Voice Matters, LLC
The Tax Cuts and Jobs Act that went into effect at the start of 2018 brought a number of changes to what is and isn’t deductible for business owners. One of the affected areas is Meals and Entertainment.
The IRS issued a new guidance on October 3, 2018, outlining further clarification on when you can and cannot deduct a meals and entertainment expense.
This new guidance aims to clarify some confusion that remains about meal deductions. This article from the AP states:
Under the IRS' guidance, 50 percent of what a business spends on meals remains deductible, as it was before the law went into effect, as long as the expense is an “ordinary and necessary” part of conducting a business. It also must not be lavish or extravagant, unless a flashy and expensive meal is considered appropriate and customary in the industry a company is part of.
But some of the requirements the IRS put on business meals in the past aren't mentioned in the guidance, and at this point they're not expected to be included in regulations the agency is in the process of writing. There's no longer a requirement that there be a business discussion at the meal. Also missing: the requirement that an owner have “more than a general expectation of getting income or some other specific business benefit at some future time.”
The deduction for entertainment or sporting event tickets is still history. However, the hot dog, Cracker Jack, or other food and beverage you buy for your client to enjoy in that now-nondeductible Skybox is still deductible.
Stay tuned as the IRS delivers additional guidance announcements on this topic.
This post is illustrative and not a substitute for professional advice. Hiring a qualified financial or tax advisor is a good investment for every independent contractor and can save you from making costly mistakes.