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IRS says business meals are still deductible

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WASHINGTON – Oct. 5, 2018 – Even if they’re part of an entertainment activity, you can still take tax deductions on your business meal expenses, the IRS clarified in temporary guidance issued this week. The real estate community has been anticipating this clarification, which Realtor® Magazine reported on last week.

The tax reform law, which was enacted at the start of the year, ended deductions for business-related entertainment, amusement or recreation – but it created uncertainty about whether associated meals remain partially deductible.

Under the just-released temporary guidance, those meal expenses remain 50 percent deductible, but you must show they were incurred separately from the entertainment expenses. The meal expenses are eligible, the guidance says, when “the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.”

The clarification is a win for real estate because business-related meal expenses are common. Based on the clarification, if you buy three baseball tickets for you and two business contacts, and during the game you buy hot dogs and soda for the three of you, the food and beverages are deductible for all three people even though the tickets are not.

Key points in the IRS guidance

  • The meal expense must be “ordinary and necessary,” and it must be paid or incurred in a trade or business context.
  • The expense must not be “lavish or extravagant.”
  • The taxpayer, or an employee of the taxpayer, must be present when the food and beverages are furnished.
  • The food and beverages must be provided to a current or potential business customer, client, consultant or similar business contact.
  • In the case of food and beverages provided during an entertainment activity, the items must be purchased separately from the entertainment on one or more bills, invoices or receipts. The entertainment disallowance rule may not be circumvented by inflating the amount charged for food and beverages.
  • The temporary guidance is in effect until the IRS issues formal rules on the deductibility of expenses for business meals, which is expected later this year.

Source: Rob Freedman, Realtor® Magazine

© 2018 Florida Realtors®

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