Business Entertainment write-offs

Business Entertainment write-offs

Business Entertainment write-offs are SO 2017

Dear Friends:

Lawmakers finally did it. They eliminated some important tax deductions for business owners.

  • In 1986, they reduced the directly related and associated entertainment deductions to 80 percent with that year’s Tax Reform Act.
  • Later, in 1993, they reduced that 80 percent to 50 percent.
  • And now, with the 2017 Tax Reform, lawmakers simply killed business deductions for directly related and associated entertainment effective January 1, 2018.

For example, during 2017, you could take a prospect or client to a business dinner followed by the theater or a ballgame and deduct 50 percent of all the monies spent, providing you passed some tax law tests on business discussion and associated entertainment.

Now, in what you and I thought was a business-friendly tax reform package, we find that lawmakers exterminated a big chunk of business entertainment. You can no longer deduct entertainment that has as its mission the generation of business income or other specific business benefit.

The 2018 tax reform prohibition against deductible entertainment is true regardless of your business discussion, negotiation, business meeting, or other bona fide transaction.  Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:

  • Business meals with clients or prospects
  • Golf
  • Skiing
  • Tickets to football, baseball, basketball, soccer, games, etc.,
  • Disneyland

Employers who for their convenience provided business meals for their employees also will lose out with the changing calendar.

Meal costs that were 100 percent deductible for perhaps a half century or more are now limited to 50 percent, and that 50 percent becomes a big fat zero deduction beginning January 1, 2026.  Employee meals that were 100 percent deductible but are now 50 percent deductible beginning January 1, 2018, include:

  • meals served at required business meetings on your business premises;
  • meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office;
  • meals served to employees who are required to staff their positions during breakfast, lunch, and/or dinner times;
  • meals served to employees at in-office cafeterias; and
  • food and meal costs for employees who are required to live on premises for the convenience of the employer.

For 2018, you need an account in your chart of accounts that says something like “meals subject to 50 percent.” In this category, you can put travel meals and the meals above.  In spite of the reduction to 50 percent, you are likely to continue your business activities that include the meals.
We’d be happy to discuss this sad state of affairs with you. If you’d like to meet, please don’t hesitate to contact our office for an appointment.

January 11, 2018|Tax Advice|