You Can’t Deduct the Ballgame, But What About the Beer?
September 28, 2018
Update: The IRS has released guidance, saying business meal expenses are still partially deductible. Read more.
The Internal Revenue Service is working on guidance that would clarify the deductibility of expenses for client meals under the new tax law, The Wall Street Journal reports. According to the report, this guidance is expected to say that the cost of business meals will be 50 percent deductible, even when those meals are purchased at events defined as entertainment, such as ballgames, as long as the cost of the food is documented separately from the cost of the entertainment.
The tax law, which took effect at the start of the year, made clear that the entertainment itself, formerly 50 percent deductible, is no longer deductible as a business expense. But it left open the question of whether meals for clients at events that are primarily business-related would still be partially deductible.
This rule clarification is of particular interest to real estate professionals because many provide food at open houses and receptions. “Unfortunately, this falls under a gray area, and we will not know for sure until the IRS issues guidance,” says Evan Liddiard, senior policy representative for federal taxation at the National Association of REALTORS®.
Linda de Marlor, president of Tax-Masters Inc., an accounting firm in Rockville, Md., that helps real estate professionals manage their taxes, says she believes the cost of food served at an event intended specifically to provide information to clients will be deductible under the tax law. “If I hold a seminar, and I serve food at the seminar for the people who come, then that’s education, and I can deduct it,” de Marlor says.
Even if the IRS settles the question of whether business meals are still partially deductible, you’ll need to ensure that these expenses are reasonable. Claiming a deduction for food expenses that are considered excessively high could cause the cost of the food to be deemed entertainment instead of a meal expense—and the deduction would be disallowed.
Liddiard says NAR will continue to advocate for members and will provide further information about this topic following any guidance issued by the IRS. As with any tax-related matter, real estate professionals should speak with a qualified tax adviser before making any decisions regarding the deductibility of meal expenses.
—Sam Silverstein, REALTOR® Magazine
Updated: May 29, 2020