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Tax

New W-4 Will Be Similar to Current Form, IRS Says

If you have employees who host clients or prospective clients for meals and entertainment, you’ll want to know about newly issued IRS guidance.

Business expense deductions for meals and entertainment were affected by legal changes dictated by the Tax Cuts and Jobs Act (TCJA). The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

Before this year, the IRS allowed a deduction, up to 50 percent, of entertainment expenses directly related to the active conduct of a trade/business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.

As reported in the Journal of Accountancy, taxpayers may now deduct 50% of an otherwise allowable business meal expense if:

• The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business.
• The expense is not lavish or extravagant under the circumstances.
• The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished.
• The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact.
• Food and beverages provided during or at an entertainment activity must be purchased separately from the entertainment, or 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 IRS will not allow the entertainment disallowance rule to be circumvented through inflating the amount charged for food and beverages.

The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. 

Until then, taxpayers and businesses can rely on the guidance provided in Notice 2018-76.

You can always find updates on the implementation of the TCJA on the Tax Reform page of IRS.gov. 

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