Things have changed in 2018 when it comes to writing off meals and food expenses in your business…
Mark Kohler provides us with some information below.
Before 2018 business owners were able to deduct 100% certain food or dining items, now they are 50%.
Also, there were certain items that were deductible up to be 50% in 2017 and earlier, AND now some of those have disappeared altogether. Let's break it down into some bite size pieces (sorry I couldn't resist).
Here’s what is now 50% (previously a 100% write-off):
- Meals to hold a required lunch meeting on the business premises with your employees (not with your business partners or clients).
- Meals to hold a required business meeting with your employees at an offsite location that passes the definition of a business premises (think hotel and not a restaurant)
- Food in the office for employees and your convenience. For example, bagels on Wednesday, donuts on Friday, coffee maker, water cooler, or even a full blown cafeteria.
Still a 50% deduction saved under the tax reform:
- Meals while traveling for legitimate business meetings. Example, education or training, conferences, or Board of Directors retreat. (Remember, traveling is outside of a ‘normal commute’ of your daily business activities).
- Snacks, food or treats at an ‘open house’ to show a home if you are a realtor
- Snacks or food at a promotional event for customers or prospects
100% food deductions that continue to survive:
- Food costs as a restaurant, store or similar establishment where the food is a ‘cost of goods sold’ as an items for sale
- Food at an event or workshop in which patrons paid to attend and the food was part of the cost to attend
The problem! – Client and prospect meals:
There is a growing debate and sharp divide among CPAs and tax professionals that the ‘meals out with a client or prospect, or even business partner’ are NOT deductible. The argument is that when the entertainment expense was completely repealed under the Tax Cuts and Jobs Act, by default it grabbed the meals expense under it’s umbrella.
Regrettably, it appears the majority of tax professionals concur that this type of meals expense is no longer a write-off for business owners and the safe bet is to ‘track’, but not ‘deduct’ these expenses until further guidance from Congress or the IRS.
In my opinion, this is an outrageous provision in the new tax law, however I am compelled to be cautious about taking this type of deduction.
Historically, taxpayers have had some success in urging Congress to repeal certain unfavorable tax law. For example, in 1984 Congress passed some aggressive and highly controversial rules regarding the auto deduction. Within nine months, the House and Senate repealed the new law. We can only hope for the same here.
Click Here to Read More on Substantiating your Expenses and 10 Takeaways
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.