Breathe a sigh of relief if you take clients out for business meals.
The Internal Revenue Service is expected to release guidance soon saying these meal expenses can often continue to be 50% deductible, according to people familiar with the matter.
For years, this deduction has been used by millions of American business owners, lawyers and real-estate brokers who take clients out for meals. But when lawmakers dropped rates for business income to new lows as part of the massive tax overhaul, they slashed some food and entertainment deductions for businesses to help pay the tab.
The biggest whack ended deductions for client entertainment—such as sports tickets, or the cost of travel on the company jet to play golf. Formerly, this write-off was 50% of qualified expenses.
The law’s hasty passage, however, left important details unclear.
Tax professionals say the new law’s language could be read to mean that deductions for client meals would drop from 50% to zero, if the business meal was considered “entertainment.” This term wasn’t defined, raising the fear that write-offs for ordinary client meals were vulnerable.
Groups such as the American Institute of Certified Public Accountants urged clarification.
“All year, tax specialists have worried that last year’s changes could eliminate the 50% deduction for client meals for 2018 and beyond,” says Ruth Wimer, a benefits attorney with Winston & Strawn.
The IRS’s guidance is expected to take a tack that generally preserves the 50% deduction for the cost of meals with clients, according to the people familiar. It’s also expected to offer details on how the 50% meal write-off meshes with the new denial of entertainment deductions.
For example, if a business owner takes a client to a ballgame, the cost of the tickets isn’t deductible because the expense is for entertainment. If the owner buys hot dogs and drinks for himself and the client at the game, this expense could still be 50% deductible, the IRS is expected to say.
Source: The Wall Street Journal, September 29-30, 2018 | Laura Sanders