Taxpayers may continue to deduct 50% of the cost of business meals, the IRS has announced.

IRS Notice 2018-76 relieves concerns that, after passage of the 2017 Tax Cuts and Jobs Act, the cost of business meals would no longer be deductible.

(Entertainment expenses, such as tickets to sporting events, are not deductible, although qualifying meals associated with the entertainment event are deductible.)

Business meals are generally deductible if five criteria are met:

• The expense is “ordinary and necessary.”
• The expense is not “lavish or extravagant under the circumstances.”
• The taxpayer, or an employee of the taxpayer, is present at the meal.
• The meal is with a “current or potential business customer, client, consultant, or similar business contact.”
• In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment.

The descriptions of the five criteria are abbreviated for the purposes of this update. For a more detailed discussion, including examples of costs that are and are not deductible, please see IRS Notice 2018-76, starting at page 5.

If you have questions regarding the deductibility of business meal expenses specific to your business situation, we recommend that you contact Lisa Reilly Payton  602-277-2010 or your tax advisor.