Here’s the updated strategy: deduct your client and business meals as if tax reform never took place. Wow. Is this aggressive? Not if:
- the IRS comes out with regulations that follow a model set by the American Institute of CPAs, or
- the Joint Committee on Taxation in its explanation of the Tax Cuts and Jobs Act (TCJA) states that client and business meals continue as deductions, or
- lawmakers enact a new tax code section that authorizes client and business meal deductions.
How big is the “if” in the if? We have some insights that say business meals will be deductible for all of 2018. Of course, nothing is certain except the current uncertainty.
Why Do We Believe This Way?
I read an article that Bradford Tax Institute asked the House Committee on Ways and Means what it thought happened to tax deductions for business meals with clients and prospects.
- Their question. “We just want to confirm that the TCJA’s disallowance of entertainment as understood by the Ways and Means Committee included the disallowance of client and prospect meals and that there is no plan to change this.”
- The Committee response. “The focus of the change in the TCJA is on entertainment expenses, with business meals subject to separate rules that were not modified. There are no plans for
changes. Further guidance will be provided in the ordinary course, including through regulations.”
Obviously, the response did not directly answer the question, but it did lay down two possible ways how business meals with clients and prospects will become deductible without modification of the tax code.
Way #1: Ordinary Course
The ordinary course means what the Joint Committee on Taxation will clarify this in its upcoming Blue Book explanations of the TCJA about business meals with
clients and prospects. Veena Murthy, legislative counsel for the Joint Committee on Taxation, has already stated that the 50 percent deduction for meals is still the law and that the new prohibition is that meals considered entertainment are no longer deductible.
Way #2: Regulations
For a glimpse of how the IRS might approach the regulations, examine the AICPA’s recommendations. We briefly highlight two of the recommendations below:
- AICPA recommendation to the IRS: Clarify that under the TCJA, business meals with clients and prospects at restaurants are deductible, subject to the 50 percent cut.
- AICPA recommendation to the IRS: Clarify that under the TCJA, business meals with clients and prospects in a restaurant before, after, or during a sporting or entertainment event, whether inside or outside the venue, are deductible, subject to the 50 percent cut.
Final Thoughts
We don’t know if the IRS will follow the AICPA recipe for deducting client and business meals. We are not sure what the Joint Committee on Taxation will say about business meals with clients and prospects in its Blue Book explanation of the TCJA. But we do know that both the House Ways and Means Committee and the Joint Committee on Taxation don’t want to have the TCJA disallow tax deductions for business meals with clients and prospects. You have to take that as good news, just not currently in any way is it tax code definitive.
Let’s put it this way: if you do what you need to do to deduct the meals, then you are in a position to claim the business meals deduction when one of the above happens. So, make sure you have your 2018 business meals documented as follows:
- The name of the person you had the meal with.
- The name of the restaurant where you had the meal.
- A short description of the business discussed.
- If the meal costs $75 or more, keep the receipt that shows the name of the restaurant, number of people at the table, and itemized list of food and drink consumed.
And don’t forget to apply some pressure on your lawmakers to retain the business meal deductions. You can reach them at the links below:
- Senators: https://www.senate.gov/senators/contact
- Representatives: https://www.house.gov/representatives