IRS Clarifies 50% Business Meal Deduction Under TCJA

The Tax Cuts and Jobs Act (TCJA) eliminated all business deductions for "entertainment, amusement, or recreation." (IRC Sec. 274(a).) This means that most things you think of as entertainment, such as taking customers to the theater, sporting events, or on hunting, fishing or vacation trips, would no longer be tax deductible. Many people feared this meant that business-related meals also would no longer be deductible.

Fortunately, the IRS has clarified that the tax deduction for business-related meals has not been eliminated by the TCJA. As long as the meal and beverage costs are:

  • “ordinary and necessary”
  • incurred in the course of your business, and
  • not lavish or extravagant under the circumstances. (IRS Notice 2018-76.)

then you can deduct 50% of the cost under the TCJA. The meal must be with current or potential customers, consultants, clients or similar business contacts and you (the business owner) or an employee must be present. You do not have to actually close a deal or get some other specific business benefit to take this deduction.

You must document the following facts if you want to deduct any business-related meals:

  • The date of the meal.
  • The amount paid. (This includes tax and tip.)
  • The place of the meal.
  • The business relationship. For example, the names and occupations of the people at the meal and any other information needed to establish their business relationship to you.

You do not have to keep receipts, canceled checks, credit card slips, or any other supporting documents for meal expenses that cost less than $75. However, you must still document the facts listed above.

For more information, see The Tax Deductible Business Meal Under the Tax Cuts and Jobs Acts.