The days of sales people fighting for a larger expense account has been changing over the past year. Instead of working out how to leverage an expense account to find new customers and keep existing customers happy, many companies have been scratching their heads trying to figure out what is even allowed as a deduction.
The Tax Cuts and Jobs Act (TCJA), which was passed in late 2017, changed the rules related to expense accounts. However, the wording of the law was very vague causing many tax experts to wonder how the Internal Revenue Service (IRS) would interpret the new rules.
Specifically, TCJA contained language that eliminated the deduction for “entertainment expenses.” Historically, meals and entertainment were lumped into one category which limited any tax deduction to only half of the amount that was spent. The new law makes it pretty clear that entertainment, such as sporting events, concert tickets, or golf green fees, are no longer deductible. But where does the cost of meals fall under the new law?
Recently, the IRS offered some clarification by announcing that meals will continue to be tax deductible subject to the previous 50% limitation. However, the cost of the meal must be billed separately to qualify. Therefore, tickets to a wine gala, for example, in which the cost of the meal and the evening’s entertainment are all billed together will not qualify for a deduction unless the business receives a separate receipt for the meal.