Ref: IRS Notice 2018-76

The IRS has given needed guidance regarding IRC Section 274 after implementation of the Tax Cuts and Jobs Act (TCJA).  In summary:

1. All business entertainment, recreation or amusement continues to be non-deductible.

Meals: A 50% deduction is now allowed for:

1. food and beverages for employees (e.g. movie locations)
2. meals reimbursed for employee travel or taking a client to a meal
3. recreational meals for employees (e.g. holiday party)
4. employee and/or stockholder meetings
5. business leagues (e.g., Chamber of Commerce)
6. items available to the public (e.g. realtor open house)

Requirements: In all of the above, the meal must have ALL FIVE of the following:

1. Be ordinary and necessary in carrying on the trade or business
2. Not be lavish or extravagant
3. The taxpayer or employee must be present at the furnishing of the food or beverages
4. The food or beverages are provided to a current or potential business customer, client, consultant or similar business contact
5. Must be purchased separately from entertainment.  Example: If an entertainment includes food and beverages not separately stated, then the entire change is disallowed.

The above applies to business entities: Sole proprietorships, partnerships, LLC/LLPs, and corporations.

It does NOT APPLY to un-reimbursed employee expenses which used to be reported on Form 2106.  Starting in 2018, those expenses and that form no longer exist.

Source: Spidell CA Taxletter; October 2018

Although not yet officially announced by the US Department of Labor, CA has announced that it has finally paid off its debt to the federal government stemming from an insolvent unemployment tax fund.  If all goes as expected, the IRS FUTA rate on the first $7,000 of CA employee wages will go from 2.7% to .6% for 2018.  That’s a reduction of $147 per employee making $7,000 or more in wages.

The US Department of Labor has until November 10, 2018 to make its formal announcement.