Travel & Entertainment Expenses

The Tax Cuts and Jobs Act of 2017 has changed the way businesses handle meals, entertainment and transportation expenses from a tax perspective.

Meals

The Consolidated Appropriations Act, 2021, in order to help the struggling restaurant industry, increased the business-meal deduction for the cost of food and beverages provided by a “restaurant” from 50 percent to 100 percent in 2021 and 2022, if certain conditions are met. Documentation of the business purpose of the meal is necessary for deductibility. The recently changed tax law extends the 50% deduction limit to employer-operated eating facilities through 2025. After 2025, employer-operated eating facilities become non-deductible.

Entertainment

The law eliminates deductions for entertainment even if it is directly related to the conduct of business.

Transportation

The tax law changes of 2017 also eliminated deductions for qualified transportation fringe benefits and certain expenses to provide commuting transportation to employees. The cost of providing employee’s transit passes or parking is no longer allowed as a deduction to the employer. In addition, the costs associated with providing transportation for an employee’s commute to work are not deductible unless necessary to ensure an employee’s safety.

Business related travel expenses are still deductible under the new law. This includes business travel between job sites, travel to a temporary assignment (generally one year or less) that is outside your general area of residence, travel between primary and secondary jobs, and all other cab, bus, train, airline, and automobile expenses. Any regular commuting expenses to your primary job cannot be deducted. The Tax Cuts and Jobs Act changed the deductibility of unreimbursed employee expenses. Previously if a taxpayer incurred business travel expenses that the company did not reimburse, they could deduct these on their individual income tax return (subject to limitations), but under the recent law changes this is no longer allowed.

Substantiation Requirements

To support business travel deductions, keep supporting documents for expenses. Document the following: Date, place, amount, and business purpose of expenditures; name and business affiliation or business purpose of trip; and in the case of meals, all of the above must directly precede or follow a substantial business discussion associated with your business. Be sure to keep personal expenses separate from business expenses.