The new tax reform law includes winners and losers.
Employers who for their convenience provided business meals for their employees are losers—50 percent losers to start and then total losers later.
Meal costs that were 100 percent deductible for perhaps a half century or more are now limited to 50 percent, and that 50 percent becomes a big fat zero deduction beginning January 1, 2026.
Employee meals that were 100 percent but are now 50 percent deductible beginning January 1, 2018, include:
• meals served at required business meetings on your business premises;
• meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office;
• meals served to employees who are required to staff their positions during breakfast, lunch, and/or dinner times;
• meals served to employees at in-office cafeterias; and
• food and meal costs for employees who are required to live on premises for the convenience of the employer.
Please note that your meals while you are traveling are still only 50% deductible or if you are meeting someone for a business purpose, discuss business at the meal, and substantiate who was met with and what was discussed. Next week I will release a blog on entertainment expenses.
I also want to clarify a point that I get asked all the time. If you are at your office/store and decide to run out and get a bite to eat because you did not bring your lunch/dinner, that is not tax deductible. Generally, without any other reasons, this is a personal expense. To be deductible, an expense has to be reasonable and ordinary. If for instance, you have to work overtime (it was unplanned) and need dinner as you are working late. Generally, that would be 50% deductible as you would be required to staff your position.
For 2018, you need an account in your chart of accounts that says something like “Meals 50% Deductible.” In this category, you can put travel meals and the meals above. If you have a small business and get lunch from time to time, you may also need a category that says “Meals Nondeductible for Tax.”
In spite of the reduction to 50 percent, you are likely to continue your business activities that include the meals. If you have questions about this new 50 percent rule or strategies to implement it, please call me at 925-954-3213.