Slimming Down Entertainment & Meal Deductions

Slimming Down Entertainment & Meal Deductions

Taking clients or prospects out for a meal or an event has been a long-standing business practice. It's a great way to get to know both them and their businesses better, while developing lasting relationships. Under the new Tax Cuts and Jobs Act implemented at the start of this year, the tax implications for these activities have changed.

In 2018, if you take your client out to a baseball game and have lunch at the ballpark to discuss their business plans for the next year, that outing is no longer tax deductible (and the meal may not be, either). Entertainment expenses are no longer tax deductible under the new tax law. And that's not the only change.  

Click here to read more about the 2018 revised tax deductions for business-related meals and entertainment expenses. [link to article online].

The number of business deals made on the golf course is a bit of a stereotype, but it's one that's rooted in fact. That may now be a thing of the past with the new tax code. According to Mark J. Kohler, CPA, Attorney, radio host, and author, prior to the new law, as long as the entertainment, amusement or recreational activity was directly related to conducting business, you were allowed up to a 50 percent of the expense as a tax deduction. As of 2018, this is no longer the case. This also includes membership dues to any club organized for recreation or social purposes, or a facility used in connection with the entertainment, amusement or recreational event. As Kohler points out, "This means no more deductions for a round of golf, theater tickets, spa visit, sports tickets, skybox, fishing, hunting, show tickets, etc." This also includes tickets to charitable events (previously 100 percent deductible).

So what happens if in the course of an entertainment outing you have a meal? Whether or not that is eligible for a deduction is unclear. Some tax professionals believe that since the entertainment deduction has been eliminated, any deductions for meals purchased during the course of entertainment have been as well. Sikich, a company that offers accounting, tax, and audit services to businesses, points out that in the past the distinction between entertainment and meals was not necessary since they were both tax deductible at 50 percent. With entertainment no longer being deductible, it's unclear how this impacts meals purchased in conjunction with entertainment.

Business meals that are not purchased in conjunction with an entertainment component are still tax deductible at a rate of 50 percent. That has not changed. Company picnics and holiday dinners for employees are also still deductible at 100 percent. However, meals that are for the convenience of the employer on or near the business premises (think bringing in a pizza lunch during an employee meeting, or supplying breakfast for an employee meeting at a hotel conference room, or Friday donuts and coffee), are now 50 percent deductible instead of 100 percent.

Meals while traveling for legitimate business purposes (where the primary purpose of travel is business) are still deductible at 50 percent, as are snacks or food at a promotional event for customers or prospects.

We've broken down some of the common deductions, what's changed, and what's stayed the same:
 

 

2017 Expenses

2018 Expenses
(New Rules)

Office holiday parties or picnics

100% deductible

100% deductible

Entertainment

50% deductible

0% deductible

Client meals

50% deductible

50% deductible

Employee travel meals/meals incurred while operating the business

50% deductible

50% deductible

Meals provided for the convenience of the Employer

100% deductible

50% deductible

Meals provided at Employer facilities (includes cafeteria facilities and other employer meals)

100% deductible

50% deductible

Meals provided in conjunction with an event where food is part of the ticket price of the event

100% deductible

100% deductible

Snacks or drinks for an open house or event that's free to the public

100% deductible

50% deductible

Please note that there is a growing debate among tax professionals that the client meal deduction remains unchanged. Some understand the new tax law to place these types of expenses under the same umbrella as "business entertainment" and therefore are no longer deductible. More guidance is needed from the IRS on this point.

Also note that meals off the business premises (taking an employee out to lunch for his or her birthday, or to talk business with a partner) are not a write-off in 2018.

For all entertainment or meal-related expenses, it's important to carefully track your expenses, including the cost, location, and what business was discussed.

Sources:
https://markjkohler.com/entertainment-expense-is-gone-in-2018/
https://markjkohler.com/writing-off-dining-and-food-expenses-in-2018/
https://www.sikich.com/insight/sikich-series-tax-reform-meal-entertainment-deductions/
https://www.pscpa.com/business-related-meals-entertainment-tax-reform/

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