Question

Bob, a calendar-year, cash-basis taxpayer, owns an insurance agency. Bob has four people selling insurance for him. The salesmen incur ordinary and necessary meal and entertainment expenses for which Bob reimburses them monthly. During the current year, Bob reimbursed his agents $10,000 for meals and $26,000 for entertainment. How much of the reimbursement can Bob deduct for meal and entertainment expenses on his current-year federal income tax return?

A. $5,000
B. $8,000
C. $30,800
D. $36,000

Answer 1

A) $5,000

Step-by-step explanation:

Under the new IRS regulations applicable since 2018, meals can be deducted up to 50% and entertainment expenses are no longer deductible. Until 2017, businesses could deduct up to 50% of both meals and entertainment. A few exceptions still apply but are very specific (e.g.regarding public charities, or company picnics).

= 50% x $10,000 = $5,000