Understanding the New Meal and Entertainment Expense Deduction

The Meal and Entertainment (M&E) expense deduction changed dramatically with the passage of the Tax Cuts and Jobs Act (TCJA). It is important to keep these changes in mind when filing your 2019 tax returns and planning for the continued impact on your tax position in the years to come.

To understand the significance of these changes, consider this comparison of 2019 and 2017 M&E deductions:

Type of Expense 2019 Deduction 2017 Deduction
Employee meals provided for the convenience of the employer 50% deductible 100% deductible
Office parties with employees and clients 100% deductible (employee portion)
(client portion)
100% deductible (employee portion)
50% deductible
(client portion)
Entertainment costs* Non-deductible 50% deductible

*Examples of entertainment costs include sporting events, club memberships and concerts. For golf outings, green fees are non-deductible, but the meals consumed are now only 50% deductible.

Qualifying for Meal Deductions

In order to be deductible, a business meal must meet all of the following criteria:

  • Either the taxpayer or an employee of the taxpayer must be present at the meal.
  • The expense cannot be extravagant or lavish.
  • The expense must be considered “ordinary and necessary” for the course of business.
  • The food and beverages provided must be intended for current or potential business customers, clients or consultants.

Documenting Meal Deductions

It is important to keep records that prove your business meals are “ordinary and necessary.” The following information should be documented for every deductible meal:

  • Receipts presenting the items consumed (food & drinks)
  • The names of the meal attendees
  • Record of the business reason for the meal
  • Proof of payment (Credit card, check, etc.)

Contact your Grassi tax advisor for more information on these changes, compliance requirements and effects on your business.

Categories: Tax