The Tax Cuts and Jobs Act of 2017 has changed the way businesses handle meals, entertainment and transportation expenses from a tax perspective.
Meals
Meal expenses associated with operating a business, including meals during employee travel, remain deductible subject to the 50 percent limitation. The cost of a client dinner, as long as it is not extravagant, is still allowed under the 50 percent deduction rule. Documentation of the business purpose of the meal is necessary for deductibility. The tax law extends the 50 percent deduction limit to employer-operated eating facilities through 2025. After 2025, employer-operated eating facilities become non-deductible.
Entertainment
The law eliminates deductions for entertainment even if it is directly related to the conduct of business.
Transportation
The tax law also eliminated deductions for qualified transportation fringe benefits and certain expenses to provide commuting transportation to employees. The cost of providing employee's transit passes or parking is no longer allowed as a deduction to the employer. In addition, the costs associated with providing transportation for an employee's commute to work are not deductible unless necessary to ensure an employee's safety.
Substantiation Requirements
To substantiate deductions, be sure to keep supporting documents, such as canceled checks and receipts, for expenses of $75 or more. Record items in a travel log or on the back of a receipt, indicating the following:
- Date, place, amount, and business purpose of expenditure.
- Name and business affiliation of person(s) you are entertaining, or business purpose of trip.
- In the case of meals and entertainment, all of the above, plus evidence that the activity directly preceded or followed substantial business discussion associated with your business.
Personal expenses should be separated from business expenses.
