December 6, 2018

New IRS Guidelines on Entertainment and Food Deductions

There are no two ways about it, taxes are confusing. Between all of the credits, deductions, allowances, and penalties, there are a lot of moving parts. Recently, the IRS attempted to make one of these moving parts a little more straightforward for business owners - deducting the cost of meals involving business with clients and/or employees.

The bureau recently issued a guidance for the deductibility of food and meals under the new federal tax law, which Congress passed last year. This tax reform was sweeping, and it has affected nearly every American taxpayer. This is particularly true for business owners, who are facing changes to the way they are supposed to manage and report certain business-related expenses. And to the dismay of many, this has impacted business food and entertainment expenditures.

The new tax law reform has eliminated a long-standing deduction for business entertainment expenses. In the past, this would include tickets to shows, sporting events, galleries, and basically anything else that is construed as entertainment. Under the old law, businesses could deduct reasonable entertainment and food so long as they were related to business development or operations. Now, entertainment expenses are largely disallowed from a deduction. Food expenses survived the Congressional chopping block, but as the IRS guidance explains there are important changes to the way this deduction is made.

The IRS guidance provides some helpful insight, but the new tax law is untested. As a result, many taxpayers are heading into 2019 in a state of confusion. There’s uncertainty about several important factors of the tax code, including whether or not company owners could continue to deduct the cost of taking clients or employees out to restaurants. After all, food may be allowed, but what if the dining experience selected could be considered a form of entertainment? Would a steakhouse meal be deductible while a dinner theater is disallowed? These are the type of questions that are causing taxpayers to run to their accountants' offices this year by the millions.

Happy Tax has made it a mission to make sure everyone has a smile on their face come tax time. We’re working towards achieving this goal by making sure all of the Happy Tax’s clients have the information and services they need to make sense of the new tax law. Our concierge-based service model is the best in the business, and soon it’ll having you tell all of your friends and associates to smile because it’s time to file!

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