***This blog has been updated on December 21, 2017 to reflect the tax bill passed by Congress***
In the past month, the House and Senate have both voted along party lines to approve their own versions of comprehensive tax reform legislation. In order to gather the necessary votes to pass their respective chambers, Republican leaders made some significant modifications during the process. In a series of blog posts, we will cover the major pieces of both bills and compare them to current law. You can see all tax reform 2017 related blogs here.
This blog will cover the topic of meals and entertainment. The changes included in both bills will require businesses to consider increased costs associated with employee perks and entertainment provided to employees and customers. Companies who continue to incur these expenses will also have to implement tracking systems to properly report income to employees and non-employees who are provided benefits.
CONFERENCE COMMITTEE APPROVED BILL
The 50% deduction would continue to apply to business related food & drink expenses and the 50% limitation would be expanded to include expenses for food and beverages for employees that are a de minimis fringe benefit. Entertainment expenses and membership dues related to entertainment or social purposes would become non-deductible.
Employer’s deduction for meals provided for the convenience of the employer on the employer’s business premises or certain other employer-operated facilities, which are reduced to 50% deductible until 2025, are non-deductible after December 31, 2025.
CURRENT LAW
Generally, only 50% of business-related meal and entertainment expenses are allowed as a deduction. There are limited exceptions that allow for 100% expensing of some meal and entertainment expenses. These exceptions are detailed in Publication 463.
Fringe benefits for employees related to transportation, on-premise athletic facilities, and other conveniences are generally allowable as business deductions. These deductions are detailed in Publication 5137.
HOUSE TAX REFORM BILL
The 50% deduction would continue to apply to business related food & drink expenses. Entertainment expenses and membership dues related to entertainment or social purposes would become non-deductible.
Fringe benefits for employees related to transportation, on-premise athletic facilities, and other conveniences are disallowed as business deductions unless they are included as income for the employee receiving the benefit.
SENATE TAX REFORM BILL
The 50% deduction would continue to apply to business related food & drink expenses and the 50% limitation would be expanded to include expenses for food and beverages for employees that are a de minimis fringe benefit. Entertainment expenses and membership dues related to entertainment or social purposes would become non-deductible.
Deductions for qualified transportation fringe benefits and commuting expense payments and reimbursements (other than for employee safety reasons) would be disallowed.
Employer’s deduction for meals provided for the convenience of the employer on the employer’s business premises or certain other employer-operated facilities are disallowed effective after December 31, 2025.