The Internal Revenue Service (IRS) recently provided guidance on the meals and entertainment deduction available for businesses. The Tax Cuts and Jobs Act of 2017 (TCJA) essentially removed this deduction when it came to entertainment expenses and reduced it for meals.
The change led to some confusion over what exactly met the agency’s definition of entertainment. A recent publication by the agency provides guidance.
Changes clarified: What is “entertainment” for the purposes of the deduction?
Within the publication, the agency states entertainment is defined as “any activity that is of a type generally considered to constitute entertainment, amusement, or recreation.” It continues by providing the following examples: “entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events and on hunting, fishing, vacation and similar trips including such activity related solely to the taxpayer and taxpayer’s family.”
The agency specifically excludes from the definition of entertainment money given from the employer to cover the cost of supper and, if traveling for work, the cost for overnight accommodations. The publication also notes there is not always a right or wrong answer. Instead, if a question arises, the answer will depend on an objective test.
It is important to note that this does not mean an employee can have free reign over meal expenses while traveling for work. The agency specifically states that such expenses must be reasonable, they cannot be for lavish meals. It also clarifies the taxpayer, or an employee of the taxpayer, must be present. The deduction can also extend to current or potential clients or customers.