A young person’s imagination can be a wondrous thing to behold. And, when adults play into the fantasies, it becomes even more wonderful. As a child of five years, my imagination knew few boundaries. If it existed in our backyard, I could imagine all sorts of marvelous adventures. Just give me a piece of rope and a wagon, and I was off to the never-never land of excitement. Add to this an occasional weekend trip to my Grandma Wilkens house, and the adventures took on a completely different dimension.
An over-night stay at Grandma’s would usually begin on a late Friday afternoon. I was delivered to the care and feeding of my grandparents by my mother who would drop me off usually after the evening meal. After a short play time with the local in-house toy chest, it was off to a big double-bed with snuggle-down blankets. I remember the bed because it was at least three-times larger than my bed at home.
The waking process was the beginning of the “Adventure” for the weekend and my growing imagination. My grandmother would awaken me with the sound of a buzzing bee. And, she would gently come beside me in the bed and pretend to “sting” me awake. The stings were more like tickles and proved the awaking process was effective.
Once washed, dressed and fed, it was only a matter of a short time before Grandma and I boarded a local streetcar for an exciting trip to downtown Indianapolis. These weekend adventures took on a basic format over the years. Usually, we would arrive in the center of the city in time to do a bit of adult shopping. My Grandma was aware of my lack of interest in this part of the weekend festivities, so, she would speed through her list of things to acquire.
Next would be a stop at Woolworth’s, a local “Five and Dime” Store, for a bite of lunch. We always sat at the counter, but I was usually too excited to eat more than a “bite.” Grandma would insist that I needed to finish my meal to keep up my energy for the rest of the adventures. It was what was about to take place, that was the best part of the day! We were off to one of the local movie houses for a show!
Downtown Indianapolis had at least a dozen movie theaters in those days, and, quite often, there was a stage show that accompanied the matinee. Keep in mind, this was years before television. Not only did we get the latest Hollywood comedy or drama, but live performances as well. It is difficult to imagine what all that glamor and excitement did to my childhood life. It added another dimension that a whole backyard couldn’t provide. The various acts of acrobatics, juggling, dancing and singing, opened my eyes and mind to a world of entertainment that had no boundaries. And, when you throw-in “Laurel and Hardy”, the “Bowery Boys” or a “shootum-up Western,” on the same bill, it just didn’t get better than that.
After leaving the theater, there was time for a quick ice cream treat, and picking up an inexpensive toy that would occupy the rest of the day at Grandma’s. My Dad would usually pick me up early on a Saturday evening and bring me back to the reality of home life minus the expanded adventure of the city.
These adventures at Grandma’s continued for several years until my sister, who was two and a half years younger than I, joined the experience. She didn’t have an iota of the interest in movies or stage shows that I enjoyed, so, it didn’t take too many downtown visits before we decided that we would discontinue the excursions.
Even though it has been over seventy-five years since those early days of “adventure”, they remain vivid reminders of times that were real…not imagined!
Once upon a time, taxpayers could generally deduct 50% of business-related meal and entertainment expenses. However, several exceptions allowed larger deductions in certain circumstances.
The Before and After of Exceptions
Under prior law, the following exceptions to the general 50% deductibility rule were available. (In some cases, as you'll see below, the exceptions have been retained under the TCJA).
An employer could deduct 100% of:
In addition to the above tax write-offs, business taxpayers could, under previous law, deduct 100% of the cost of:
Effective for amounts paid or incurred after December 31, 2017, the TCJA disallows deductions for most business-related entertainment expenses, including the cost of facilities used for most of these activities.
Specifically, nondeductible expenses now include:
Deductions Still Allowed
Apparently, you can still deduct 50% of the cost of business-related meals with business associates. If so, the time-honored rules for proving that meals are business-related still apply. Once again, this conclusion isn't completely clear at this time. We are awaiting IRS guidance.
It's clear that you can still deduct 50% of the cost of meals for you or an employee while away from home on business-related travel.
In addition, a business's costs for meals and food and beverages that fall under some of the exceptions listed above are still 100% deductible (for example, when the cost is reported as taxable compensation to recipients who are employees and non-employees). Meals provided to employees subject to the DOT hours-of-service limitations are still 80% deductible.
Key Point: If a hotel or other lodging establishment includes meals in its room charges or you give employees per-diem allowances that are intended to cover meals, you can use a reasonable method to determine the portion of expenditures allocable to meals and subject to the 50% deductibility rule. Ask your tax advisor about this.
Tax Planning Considerations
Taxpayers should assess their current expense allowance policies to determine if the unfavorable TCJA provisions warrant changes in policy — especially for entertainment expenses incurred by employees. Accounting system changes may be necessary to separately track employee entertainment expenses and employee business-related meal expenses, which may still be 50% deductible.
As you can see, the treatment of meal and entertainment expenses is complicated after the TCJA. Maybe more complicated than you thought! Also, understand that what you read here is based purely on our analysis of the applicable provisions in the Internal Revenue Code. Subsequent IRS guidance could differ.
Feeding Employees: Then and Now
De minimis meals. Under prior law, employers could deduct 100% of the cost of food and beverages supplied to employees, if the food and beverages were tax-free to employees because they qualified as a de minimis fringe benefit. Those benefits are defined as having a value and frequency of occurrence so small as to make accounting for them unreasonable or administratively impractical. Examples include:
Employer-Operated Eating Facilities: Under prior law, employers could deduct 100% of the cost of operating a qualified eating facility for employees, such as a company cafeteria. The facility had to meet certain requirements.
First, it had to be:
TCJA Change: For amounts paid or incurred from January 1, 2018 through December 31, 2025, the new law allows employers to deduct only 50% of the cost of operating a qualified eating facility for employees. After 2025, no deductions will be allowed.
Employers that operate eating facilities for employees should review the costs of running their facilities and determine if the temporary 50% deduction rule and the eventual complete disallowance rule dictate a change in policy.
Meals Provided for the Convenience of the Employer. Under prior law, the cost of meals furnished to an employee for the convenience of the employer could be fully deducted by the employer and treated as tax-free to the recipient. However, 100% deductibility for the employer only applied if a bevy of requirements were met. Otherwise the general 50% deductibility rule for meals applied.
TCJA Change: For 2018-2025, the TCJA allows employers to deduct only 50% of the cost of meals that are provided for their convenience. After 2025, no deductions will be allowed.
Then came the Tax Cuts and Jobs Act (TCJA), which dramatically shifts the playing field for expenses paid or incurred after December 31, 2017. The new law also creates some uncertainties, as this article will explain.
Your tax advisor can keep you up to speed on the issues and suggest strategies to get the biggest tax-saving bang for your business meal and entertainment bucks.