Business Gifts, Travel, Meals & Entertainment Expenses

Strict substantiation rules apply to the following expenses incurred for either business or investment purposes: (1) travel, including meals and lodging while away from home overnight or long enough to require rest and sleep; (2) business meals; (3) local transportation expenses; and (4) gifts. These rules disallow a deduction unless the taxpayer substantiates the following items by maintaining adequate records or by providing other sufficient corroborating evidence:

CAUTION

• A credit card statement is not sufficient documentary evidence of a lodging expense. Instead, a hotel bill showing the components of the hotel charge is required.

• Deductions for business gifts are limited to $25 per year per individual.

CHANGES UNDER TAX CUTS AND JOBS ACT (TCJA)

• Deductions are no longer allowed for an activity generally considered to be for entertainment, amusement, or recreation; membership dues for any club organized for business pleasure, recreation or social purpose; or any facility used in connection with those items for amounts paid or incurred after December 31, 2017.

Meal expense that are 100% deductible:

• Recreational expenses primarily for employees who are not highly compensated, such as the business holiday party or the company picnic
• Office snacks provided to employees at the office
• Meals provided on the employer’s premises to more than half of the employees for the convenience of the employer, meaning meals provided to employees to keep them working late or on weekends for the employer’s convenience
• Meal expenses (or goods, services, and facilities) made available to the public, usually for advertising and promotional purposes
• Meals for which the business is reimbursed for the expense
• Meal expenses includible in income of persons who are not employees

Meal expense that are 50% deductible:

• Meals directly related to business meetings of employees, stockholders, agents, and directors
• Office meetings and partner meetings
• Meals with clients, customers, and vendors that will benefit the business
• Meals while on business travel status
• Meals while attending a business seminar, convention, or any other form of meeting
• Meals, which are part of an entertainment event, provided they are separate stated or separately invoiced.

Recommended Steps to Take Now

• Ensure that your general ledger accounts are properly separated.   For example, entertainment expenses should be in their own separate account and not combined with travel.