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Breathe a sigh of relief if you take your clients for business lunches.
The Internal Revenue Service should issue guidelines quickly stating that these meal expenses can still continue to be deductible at 50%, according to familiar people.
For years, this deduction has been used by millions of American business owners, lawyers and real estate brokers who take their clients for meals. But when legislators lowered their corporate income interest rates as part of the broader tax reform, they reduced some food and entertainment deductions to help companies pay the price.
The most important were deductions for customer entertainment, such as sports tickets or travel expenses on the company's jet to play golf. Previously, this write-off represented 50% of eligible expenses.
The hasty passage of the law, however, left important details.
Tax professionals say the wording of the new law could be interpreted to mean that deductions for guests' meals would go from 50% to zero if the business meal was considered "entertainment". the meals of ordinary customers were vulnerable.
Groups such as the American Institute of Certified Public Accountants have sought clarification.
"Taxists around the year are concerned that last year's changes have eliminated the 50% deduction for customers' meals for 2018 and beyond," says Ruth Wimer, Winston & Lawyer. Strawn.
The IRS guidelines should take an approach that generally preserves the 50% deduction for the cost of meals with customers, according to people familiar with it. It is also planned to provide details on how the 50% meal cancellation is consistent with the new deduction for entertainment deduction.
For example, if a business owner brings a customer to a baseball game, the cost of the tickets is not deductible because the expense is for entertainment. If the owner buys hot dogs and drinks for himself and the customer at the game, this expense could still be deductible at 50%, the IRS should say.
The cost of the meal would also be deductible if it is part of the ticket price, but it is detailed separately from the cost of watching the match. If the cost of the food is part of the ticket price and is not broken down separately, then it would not be deductible.
So, if someone pays $ 200 for a baseball ticket, including non-itemized food, then all of the $ 200 would not be deductible.
"This position would provide a good balance between deductible and non-deductible entertainment and lead to a lot of billing and billing details," says David Auclair of Grant Thornton's Tax Office.
The IRS will also probably warn taxpayers not to inflate the amount charged for food and beverages in order to circumvent the restriction of entertainment. In other words, do not reallocate your expenses so that the round of golf with a customer costs $ 20 and lunch costs $ 400 thereafter.
The IRS clarifications are not meant to change the normal requirements that business owners must meet to make deductions for customers' meals.
Business must be discussed before, during or after the meal. And the meal does not have to be "sumptuous or extravagant". This term is elastic and depends on the occasion, say the specialists.
The expected focus of the IRS on customer meals is a rare spot among radiation for food and commercial entertainment. Most are now lower than before the tax revision. They are also worth less because tax rates are often much lower.
For example, the radiation for office coffee, tea and snacks such as pretzels has now increased from 100% to 50%. The same is true for the deduction for a cafeteria provided by the company to the workers.
A valuable gift for some companies and workers was also a great success. The deduction of the cost of free meals provided "for the convenience of the employer" is now 50% against 100% in the previous law and could fall to zero in the future.
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Taxists around the year have worried that last year's changes will eliminate the 50% deduction for customers' meals in 2018 and beyond.
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This reduction will affect meals that some companies provide to workers during peak periods (such as the tax season) and that other companies are offering all the time, for example on a Silicon Valley campus.
The price reversal overturns the precedent set in a notorious case in 2017 regarding the Boston Bruins Tax Court. The owners convinced the court that the food provided to the team in the "off" games deserved a 100% deduction, instead of 50%, under this provision.
Certainly, some deductions of food and entertainment have not moved. Social and recreational meals and entertainment for employees, such as holiday parties, can still be 100% deductible. The meals provided in the executive dining room also remain 50% deductible, says Wimer.
Meals and entertainment for certain employee, partner, director and shareholder meetings should also remain 50% deductible, although the law currently states that such entertainment is 100% deductible. Tax professionals say that it is a drafting error that can be corrected.
Write to Laura Saunders at [email protected]
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