Business meals are now once again based on “ordinary and necessary” business expense rules.
The TCJA removed the “directly related and associated with” requirements from business meals.
So how does this effect you? This is actually good news for you. I will list a few examples:
If for business reasons, you take a customer to breakfast, lunch, or dinner at a restaurant, hotel or even to a bar for a few drinks and didn’t discuss business you can still deduct the costs of the meals and drinks. The law provides that if circumstances are the type generally conducive to a business discussion, you may deduct the meals and beverages to the extent they are ordinary and necessary expenses.
Consider this a “no discussion” meal or a “quiet business meal”.
Circumstances that are conducive to a business discussion depend on the facts. You must take into consideration the surroundings in which the meals or beverages are furnished, your business, and your relationship to the person entertained. The surroundings should be such that there aren’t substantial distractions to the discussion.
Generally, a restaurant, hotel dining room, or something similar that doesn’t have distractions such as a floor show, is considered conducive to business discussion. Business meals at nightclubs, sporting events, large cocktail parties, or sizable social gatherings would not generally be conducive to a business discussion.
These meals may be even at your home as long as you serve the food under circumstance conducive to a business discussion. However, the IRS adds that you must clearly show that the expense was commercially
Goodwill meals are generally deductible expenses also. As an example if you take a customer and their spouse to lunch or dinner and don’t discuss business but the surroundings are conducive to a business discussion, it is generally deductible if it’s considered ordinary and necessary. The expense is not deductible if the entertainment is socially motivated.
Documentation is very important. You need to keep records to show that the expense was “ordinary and necessary”. Keep the receipts that show the purchase of food and drinks consumed. You need to have proof of payment (credit card receipt canceled check). Write the name or names of the customers on the receipt. Record a short note of the business reason for the meal. This can be just a few words as an example “quiet business meal” it is not necessary to elaborate.
The costs of the business meals are 50% deductible as they were before the TCJA.
David C. Zubler