Hot Dogs, Yes. Baseball Game, No.
The IRS has finally clarified the treatment of certain business-related expenses that caused confusion as part of last years’ Tax Cuts and Jobs Act (TCJA).
Confusion surrounded travel, business meals and entertainment. Prior to the TCJA, you could write-off 50% of entertainment, amusement or recreation expenses that were directly related to your business. However, under the new regulations there are no allowable entertainment, amusement or recreational deductions.
However, if your clients or prospects need to eat or drink something during an entertaining or recreational event, you can feed them and deduct the allowable 50% as long as the food expense is kept separate from the ticketed event. So, you can lavish your client with hot dogs and beers (or sodas) but not the ballgame. You can indulge yourself, your client and prospects to lobster and deduct 50% of that expense, but not the theater tickets!
Be careful though.
If you have box seats at the game and food is provided as a perk of the expense of box seats, neither the food nor the box seats can be a deductible expense. The whole idea is that the expense must be ordinary and necessary to carry on trade and business. Keep all meal expenses separate from any entertaining events.
And don’t think you can send your client out to dinner on the company. If you’re paying taxes, you or at least one of your employees must be present for the meal – even if it is a hot dog! And, if the meal is considered to be lavish or extravagant, you can expect red flags to fly at the IRS. So, if you want lobster, they better be in season and considered to be ordinary wherever you are conducting your business.
The IRS is paying close attention to business expenses. Don’t make the mistake of including non-allowable deductions. We’re here to help you sort these things out so you don’t become a target for the IRS.