While the Tax Cuts and Jobs Act removed the deduction for entertainment that many businesses enjoyed in years past, the IRS announced Notice 2018-76, which outlines when business owners can deduct half of the price tag for business meals.
To qualify for the deduction, the business owner or an employee of the business must be present for the meal, it must be “directly related” to the “active conduct of the taxpayer’s trade or business,” and it must not be “lavish or extravagant.”
That being said, a business-owning taxpayer might be able to deduct food eaten at an event—like a concert—as long as it was “purchased separately from the event .... [and comes] immediately before or after a bona fide business discussion.”
Those curious about what is defined as entertainment can check out page 3 of Notice 2018-76, which includes the following list of recreational locations:
- Night clubs
- Cocktail lounges
- Country clubs
- Golf and athletic clubs
- Sporting events
Notice 2018-76 also includes “hunting, fishing, vacation, and similar trips” as activities and events that qualify as entertainment, but specifically notes circumstances that would not count, like giving an employee who's working late some money for food.
Tax professionals worried about any grey areas in the Notice 2018-76 guidance may be comforted by the fact that the IRS closed its press release by indicating proposed regulations specifically addressing the business meal deduction are on the way.