Tax Cuts and Jobs Act – 2017
Meal and Entertainment Expenses
By Matthew E. Miller, CPA, MBA
Before the Tax Cuts and Jobs Act (TCJA), taxpayers could generally deduct 50% of business-related meal and entertainment expenses, and exceptions allowed bigger deductions in certain circumstances. The TCJA shifts the playing field for expenses paid or incurred after 12/31/17.
Unfavorable Change Disallows Deductions for Most Entertainment Expenses
Effective for amounts paid or incurred after 12/31/17, the TCJA disallows deductions for the most common business-related entertainment expenses, including the cost of facilities used for most business-related entertainment activities. Specifically, nondeductible treatment now applies to the cost of tickets to sporting events; license fees for stadium or arena seating rights; private boxes at sporting events; theater tickets; golf club dues; company golf outings for customers; hunting, fishing, and sailing outings; and so forth. Some business entertainment expenses are still deductible, but only in very limited circumstances.
Deductions Still Allowed for Eligible Food and Beverage Expenses
After the TCJA, the most common business-related meals are still 50% deductible, and the time-honored rules for proving that meals are business-related still apply. In addition, food and beverages that fall under certain exceptions are still 100% deductible after the TCJA. Although uncertain at this point, it appears businesses also can still deduct 50% of food and beverage expenses incurred at entertainment events, but only if business was conducted during the event or immediately before or after. These rules can get tricky, and future IRS guidance may change things, so contact us for details.
Consider assessing your current expense allowance policies to determine if the unfavorable TCJA provisions warrant changes—especially for entertainment expenses incurred by employees, which are now nondeductible (unless reported as taxable compensation). Accounting system changes may be necessary to separately track employee entertainment expenses and business-related meal expenses, which are still 50% deductible.
Please contact us if you have questions or want more information. The current tax rules for business-related meal and entertainment expenses are complicated, but we can help you plan ahead to get the best treatment for your business’s expenses. If you would like to meet with one of our tax advisors to discuss aspects of the new tax law in the greater detail, we would be delighted to do so. Please contact our office at 703-591-9280 to schedule an appointment.