Taxing Definitions

Definition — Deductions on the plate

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Tax law: never underestimate the entertainment value.

A recent source of entertainment has been wondering whether or not the Tax Cuts and Jobs Act eliminated the deduction for business meals. That law generally repealed entertainment deductions by amending internal revenue code section 274 (disallowance of certain entertainment, etc., expenses).

However, the act didn’t specifically address the deductibility of expenses for business meals.

Notice 2018-76, released October 3, 2018, provides food for thought on the question of when business meal expenses are nondeductible entertainment expenses and when they are 50% deductible expenses.

Under this notice, you can deduct 50% of an otherwise allowable business meal expense if

1. The expense is an ordinary and necessary expense for your business

2. The expense is not lavish or extravagant

3. You (or an employee) are present at the furnishing of the food or beverages

4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and

5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

 

1

You buy two tickets to a baseball game and invite a business contact to attend with you. While at the game, you buy hot dogs and drinks for both you and your business contact.

Assuming items 1 and 2 on the list above are met, can you deduct 50% of the cost of the meal on your business tax return?

or

 

2

You invite a business contact to a basketball game. You buy the tickets so you and your business contact can attend the game in a suite, where you have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages.

Assuming items 1 and 2 on the list above are met, can you deduct 50% of the cost of the meal on your business tax return?

or

 

3

You invite a business contact to a basketball game. You buy the tickets so you and your business contact can attend the game in a suite, where you have access to food and beverages. The invoice for the game tickets separately states the cost of the food and beverages.

Assuming items 1 and 2 on the list above are met, can you deduct 50% of the cost of the meal on your business tax return?

or

 

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions and official documents. The full documents may include facts and issues not presented here. Please use the link provided in the post to read the entire document.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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Right answer!

The baseball game is entertainment as defined in regulation 1.274-2(b)(1)(i) and the cost of the game tickets is an entertainment expense and is not deductible.

The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance.
Therefore, 50% of the expenses associated with the hot dogs and drinks purchased at the game are deductible.

Sorry, wrong answer :(
Sorry, wrong answer :(
Right answer!

The basketball game is entertainment as defined in regulation section 1.274-2(b)(1)(i) and the cost of the game tickets is an entertainment expense and is not deductible.

The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. The cost of the food and beverages also is an entertainment expense that is subject to the section 274(a)(1) disallowance.

None of the expenses associated with the basketball game are deductible.

Right answer!

The basketball game is entertainment as defined in regulation section 1.274-2(b)(1)(i) and the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible.
However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance.

Therefore, 50% of the expenses associated with the hot dogs and drinks provided at the game are deductible.

Sorry, wrong answer :(
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