New Tax Law Changes the Way you can Deduct Meals and Entertainment Expenses in 2018
Businesses will be affected by a major tax reform in 2018 under The Tax Cuts and Jobs Act (TCJA) which eliminates the deduction for business-related entertainment expense for amounts incurred or paid after Dec. 31, 2017. The TCJA also modifies the rules for deducting meals.
Starting in 2018, the costs of entertainment expenses WILL NO longer be deductible. 50% of the entertainment expenses were deductible under the previous tax code. All businesses and entrepreneurs are affected — Sole-proprietors, S-Corporations, LLCs and C-Corporations. No one is exempt from this provision in the new tax law.
New 2018 Law – Entertainment Expenses
No deduction is allowed for the following entertainment expenses:
- Any activity considered to be entertainment, amusement or recreation
- Membership dues to any club organized for recreation or social purposes
- A facility, or portion thereof, used in connection with the above items
Unfortunately, that means no deduction for sports tickets, skybox, fishing, theater or show tickets, spa visit, a round of golf, etc. No longer are the days when you could expense the cost of taking your client or prospective client to a baseball game or any type sporting event. The act also eliminates deductions for expenses incurred for entertainment facilities (for example, a stadium suite or skybox) and for amounts paid for membership in any club organized for business, pleasure, recreation, or social purposes. The deduction for meals purchased during entertainment activities also is eliminated. Entertaining is a big part of doing business. The new law may mean more dinners, and fewer experiences, for clients.
Deductibility Allowance of Business Meals
Meals are also significantly impacted under the new legislation! The following is a reasonable understanding of the deductibility allowance of business meals from the IRS until additional guidance is given:
Meals with clients, customers or prospects at an entertainment activity (i.e.: meals at a sporting event)
Meals with clients, customers, or prospects without substantial business discussions
Meals with clients, customers, or prospects with substantial business discussions
Meal reimbursements for employees while traveling on business
50% Deductible (until Jan 1, 2026)
On-premise meals provided for the convenience of the employer (such as lunch or dinner provided to employees while working)
Free meals to employees from an on-site dining facility
Holiday party or similar social events for employees
The new tax law requires that business is conducted during the meal and the cost of the meal is not lavish or extravagant.
Employers still can fully deduct entertainment expenses included in employee W-2 wages or paid under certain reimbursement arrangements. They still can fully deduct expenses, including meals, incurred for recreational, social, or similar activities primarily for the benefit of employees, such as expenses incurred for an annual holiday party or summer outing.
With this new law, it is extremely important that taxpayers maintain the proper documentation to show the amount, time, date and place of expense; business purpose; and business relationship of the persons entertained.
A tax advisor can assist in evaluating the new tax law’s overall impact on your business and how to plan for it.
Joshua Wilson, CPA, PC is a full service public accounting firm that specializes in accounting, tax preparation, tax planning, & business development for small businesses in the Gwinnett & Barrow County areas. Give Joshua a call today to set up a consultation at 770-856-1309 or email him at firstname.lastname@example.org.