How New Tax Laws Affect Meal Write-Offs Under the new tax law, dining, meals, food in the office, food while traveling, eating with employees, and eating with partners or clients all have one thing in common: They’re confusing! • Meals to hold a required lunch meeting on the business premises with your employees (not with your business partners or clients). ... Continued from page 4
• Meals to hold a required business meeting with your employees at an off-site location that passes the definition of a business premises (think hotel, not restaurant).
Yes, most of it is still a write-off, but what percentage and how to stay out of hot water with the IRS, well … that’s a whole other question.
First, let’s examine the types of meals. I’ll try to“set the table”with four main options to consider and what you should be tracking in your books. Type 1: DiningWith a Prospect or Important Client This is the most common meal expense we have all relied on and utilized in our businesses for years. It’s typically deductible at 50 percent, and we hope that continues to be the case. Regrettably, there is a growing debate and sharp divide among CPAs and tax professionals who believe that meals out with a client, prospect, or business partner are not deductible. The argument is that when the entertainment expense was completely repealed under the Tax Cuts and Jobs Act (TCJA), it grabbed the meals expense under its umbrella by default. However, it appears that a majority of tax professionals expect IRS regulations or further congressional guidance to“clarify”the issue. Specifically, we are expecting that meals unrelated to any entertainment experience will still be deductible. Thus, we are directing our clients to track these expenses in 2018 but to not deduct them until further guidance from Congress or the IRS is provided.
• Food in the office for employees’and your convenience, such as bagels, doughnuts, coffee makers, and watercoolers.
• Meetings that include a lunch fee; for example, at the chamber of commerce or bar association.
Type 4: Marketing Presentations, COGS Food Expenses, and Year-End Parties for Employees Yes, some types of food expenses survived and are still 100 percent deductible! These are items where food is paid for in a nonentertainment venue for the general public at a marketing presentation or“open house.”Moreover, you can deduct the food and costs for a team-building event or year-end party exclusively for employees (not the owners of the business or certain highly compensated employees). Consider this an experience for your rank- and-file employees. SubstantiatingYour Expenses In light of these more complicated— and confusing— rules, it’s more critical than ever to track your expenses carefully in order to allocate and deduct them in the proper manner come next spring. Bookkeeping Is More Important Than Ever We are highly recommending our clients create bookkeeping categories/expenses in QuickBooks for these four types of meal expenses. This way, at the end of the year, you can better strategize, substantiate your expenses, and make sure you take the proper percentage write-off for the right type of expense.
Type 2: DiningWhile Traveling Good news here —no changes.
Type 3: MealsWith Employees, AssociationMeetings, and Food for Employees Under the new tax law, these expenses are now limited to 50 percent. Here are a few examples of these expenses:
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what I wanted . I had to practice anticipating the future and focus on something I wanted to happen rather than on something already in front of me. I had to be ready before the moment happened. I’m not a pro photographer; it is only a hobby that helps me relax. But the lessons I’m learning can easily be translated to other areas of business and life in general.
My biggest takeaway so far is this: Limitations are not my enemy — my lack of practice and ingenuity is.
For example, I only have 36 shots on a roll of film. This is a serious restriction, especially when I think about the fact that my phone can take thousands of high-resolution pictures and 4K video. But having this limitation puts me in a different frame of mind. I look around twice before choosing what to take a picture of and I double- and triple-check my settings. Only then do I take the picture. Shooting with film also takes more time to manually set the exposure and focus each image. This is particularly annoying when the subject is moving. Last week, I walked around downtown Cleveland and wanted to take a picture of the light rail car as it turned a corner. I missed the shot a few times, but I eventually got
• We’ll never be able to get rid of all limitations, so being able to find a way around them is more important.
–Laszlo Szilagyi, CPA • It takes practice to focus on the future and anticipate what will happen, but sometimes it is required to take advantage of a new opportunity.
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