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How did tax reform change the business deduction for meals?

The Tax Cuts and Jobs Act (TCJA) led to major tax reform. One specific example: the TCJA led to the elimination of the previously allowed business deduction for meals and entertainment.

Change leads to confusion: What business deductions will the IRS allow?

Although the Internal Revenue Service (IRS) generally does not allow entertainment deductions, business deductions for meals remain available. The IRS recently published a notice to provide additional guidance. The law allowed for the continued deduction of “50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant.” The law goes on to allow for the deduction of the cost of meals when they are “provided to a current or potential business customer, client, consultant or similar business contact.”

This definition is vague. What exactly does the Internal Revenue Service (IRS) consider “lavish or extravagant?” Although the government does not provide a clear definition of lavish or extravagant, it states it would use an objective review to make a determination. This could allow for deduction of the cost if a lavish or extravagant meal was appropriate for the industry taking the deduction.

Additional information forthcoming: When will IRS provide guidance?

The IRS also notes that it will provide additional information through proposed regulations available at a future date. A release date is not yet set.

In the meantime, those who are attempting to navigate these new tax laws are wise to review their tax planning strategy to better ensure they do not run afoul of their tax obligations. The attorneys at Goldburd McCone LLP can help and can also provide representation in the event of an audit.

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