You may have seen a report today in The Wall Street Journal (subscription and login required) stating that the Internal Revenue Service is working on guidance that would clarify the deductibility of expenses for client meals under the new tax law. According to the report, this guidance is expected to say that the cost of business meals will be 50 percent deductible. That could include expenses for food purchased at events defined as entertainment, such as ballgames, as long as the cost of the food is documented separately, the report says.
The tax law passed last December made clear that the cost of the entertainment itself, which formerly was 50 percent deductible, is no longer deductible as a business expense, but left open the question of whether meals for clients, even 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 or receptions for clients and prospective clients. “Unfortunately, this falls under a gray area, and we will not know for sure until the IRS issues guidance,” says Evan Liddiard, a CPA and NAR’s senior policy representative for federal taxation.
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 that the cost of food served at an event intended specifically to provide information to clients will be deductible under the new 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.
Also, note that even if the IRS settles the question of whether business meals are still partially deductible, you’ll still 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 to be disallowed as a result.
As with any tax-related matter, real estate professionals should speak with a qualified tax advisor before making any decisions regarding the deductibility of meal expenses. NAR will continue to advocate for members as the government implements the new tax law, and will provide further information about this topic following any guidance issued by the IRS.