Business meal deductions likely here to stay after new IRS guidelines

Employers wondering whether they can still deduct business meals from their tax returns may soon be getting an answer from the IRS.

The agency is expected to release guidance saying that business meals will continue to be 50% deductible, according to The Wall Street Journal.

The confusion over the deductibility of business meals stems from the IRS’s decision to end deductions for client entertainment, a move that was part of the government’s tax overhaul. Previously, the entertainment-related deduction was 50% of qualified expenses.

The elimination of deductions for client entertainment left many tax professionals wondering whether client meals might be considered entertainment and therefore no longer qualify for deductions.

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Tables for clients are set at the BNP Paribas SA office in New York, U.S., on Wednesday, Sept. 16, 2015. Many of Wall Street's biggest banks have revamped their dining facilities in recent years, adding copious amounts of salad and partnering with local businesses to provide a smorgasbord of organic offerings. Photographer: Stephanie Keith/Bloomberg

The anticipated IRS guidance — which comes at the urging of the American Institute of Certified Public Accountants and other groups — is expected to preserve the 50% deduction for the cost of meals with clients and elaborate on how the 50% meal write-off meshes with entertainment expenses, the Journal reported.

If a business owner or employee, for example, takes a client to a ballgame, the cost of the tickets is not deductible because the expense is for entertainment. Hots dogs and drinks purchased at the event, however, could still be 50% deductible, the IRS is expected to say. The IRS, which did not respond to a request for comment, is not likely to change the normal requirements corporate executives must meet to take deductions for client meals. They must discuss business with the client before, during and after the meal, and the meal must not be “lavish or extravagant,” the Journal said.

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