The Tax Cuts and Jobs Act (TCJA) implemented several significant changes to the tax code designed to streamline and simplify regulations. Many of the changes such as the Qualified Business Income Deduction, more generous asset expensing and depreciation rules, as well as, the lowering of the corporate tax rate were welcomed by many Atlanta companies. Such changes were essential to meeting the President’s goal of making the U.S. more tax-friendly for businesses. It was not all good news, however, as one of the most common business tax benefits – the meals and entertainment expense deduction – was drastically altered. It eliminated the opportunity for Atlanta businesses to deduct business-related entertainment expenses. Unfortunately, the law didn’t specifically address meal expenses incurred during entertainment events leaving many questioning their deductibility. On October 5th, the IRS issued Notice 2018-76, which provides interim guidance on this issue. To help clients, prospects and others understand the changes and impact, Wilson Lewis has provided a summary of key details below.
Under interim regulations, the taxpayer may deduct 50% of an allowable business expense meal assuming the following conditions are met:
Examples
Some examples were provided with the guidance to demonstrate how the new rules should be applied. Two have been outlined below as an illustration.
The IRS stated in the interim guidance, “The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.” It’s clear they will be carefully reviewing documentation and seeking substantiation for meal deductions to ensure they are in alignment with interim guidance. Given this fact, it’s important for companies to review and modify corporate policies to ensure they are in alignment with these changes. It’s also a good idea to communicate with and educate employees on their responsibility to collect the required documentation in the proper format.
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The guidance makes it clear that certain meal expenses, even those incurred during qualifying entertainment events, can still receive a 50% deduction. This is welcome news for many Atlanta companies that were uncertain about how to treat these expenses. If you have questions about the new guidance or need assistance with an accounting or tax planning issue, Wilson Lewis can help! For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon!
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