MoldMaking Technology

DEC 2018

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Page 36 of 50 35 THE BOTTOM Understanding Business-Meal Deductions By Michael J. Devereux II, CPA, CMP On October 3, 2018, the IRS provided mold shops interim guidance concern- ing the deductibility of business meal expenses. In Notice 2018-76, the IRS clarified that shops will still be able to deduct 50 percent of their business-meal expenditures, just not expenditures associated with entertainment. Background The Tax Cuts and Jobs Act (the Act), which became law in December of 2017, eliminated the ability of mold shops to deduct expenditures for entertainment, amusement or recreation. While the Act repeals the deduction for entertainment expenditures that are paid or incurred after December 31, 2017, it does not specifically address the deductibility of expenses for business meals. Before the Act, mold shops generally could deduct 50 percent of the meals and entertainment expenditures that they incurred by carrying on their trade. As a result, many shops accounted for meals and entertainment in one account because the same tax treatment applied. However, mold builders now need to account for meals and entertainment separately, as no deduction is allowed for enter- tainment in 2018 and beyond. Guidance The IRS intends to propose treasury regulations providing guidance on the deductibility of expenses for business meals. As a result, this guidance is interim but gives mold shops something to consult until the IRS issues additional guidance. Before the Act, expenditures for entertainment, amuse- ment or recreation were not deductible unless the shop could establish that the entertainment was directly related to the active conduct of business during, immediately preceding or immediately following the entertainment. The Act repealed this exception and disallowed a deduction for all entertain- ment expenditures. Otherwise allowable meals remain deductible and are subject to the 50-percent limitation. Shops may deduct 50 percent of such an allowable busi- ness-meal expense if the expenditure meets all of the follow- ing conditions: • The expense is ordinary in nature and is paid or incurred during the taxable year in which the mold shop is conduct- ing business. • The expense is not lavish or extravagant. • The shop or an employee of the shop is present during the meal. • The food and beverages are provided to a current or pro- spective customer, consultant or similar business contact. • The food and beverages are purchased separately from the entertainment, or the cost of the food or beverage is stated separately from the cost of the entertainment (in the case of a meal provided during or at an entertainment activity). Mold shops must meet all five of these requirements to deduct 50 percent of the business meals, and the notice specifically states that the disallowance for entertainment expenditures may not be circumvented by artificially inflat- ing the amount charged for food and beverages. The notice provides three examples addressing the deduct- ibility of business meals: • The shop buys tickets to take a customer to a baseball game and also buys the customer a hot dog and drinks. The IRS explains that 50 percent of the cost of the hot dogs and drinks is deductible, while the cost of the base- ball tickets is not. Mold shops should document these five requirements for each business meal to ensure that they may continue to deduct 50 percent of their business meals.

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