The Internal Revenue Service closed out September by announcing the publication of final regulations for the business-related entertainment deductions that were removed from section 274 by the Tax Cuts and Jobs Act.
Corporations celebrated the new 21 percent tax rate and small businesses took advantage of the section 199A qualified business deduction, but the TCJA elimination of “entertainment, amusement, or recreation activities” was a far less popular change.
Business relationships are like any other relationship: shaped by shared experiences. That’s why taking clients and potential business partners to concerts and baseball games as part of a business discussion was long seen as an essential part of sealing a deal. Despite the removal of most such deductions in the TCJA, some still remain.
What business entertainment deductions can taxpayers still claim?
The IRS points out in the final regulations that “Congress did not amend the provisions relating to the deductibility of business meals. Thus, taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel” (TD-9925, 5).
Since the TCJA didn’t make changes to business meals, the old restrictions still apply: “No deduction is allowed for the expense of any food or beverages unless (a) the expense is not lavish or extravagant under the circumstances, and (b) the taxpayer (or an employee of the taxpayer) is present at the furnishing of the food or beverages” (5).
To learn more about which business entertainment deductions are and are not allowed, check out the TD-9925. The IRS also recommends taking a look at their “Tax Reform” page for a broad overview of all TCJA-related changes.
Want to read about other final regulations?
Source: IR-2020-225
Trussell Tax