Deducting business-related meals and entertainment expenses is common for most businesses, but the Tax Cuts and Jobs Act has made sweeping changes. Business owners will need to be aware of the changes and how to properly account for them.
New Law
Starting January 1, 2018, most entertainment expenses are no longer deductible. These expenses include sporting event tickets, golf outings and other activities and tickets used to entertain clients. An exception is for recreational and social activities provided for employees, excluding highly compensated employees, such as office holiday parties, which are still 100% deductible.
Business meals with clients are still 50% deductible, as are employee travel meals and meals provided for the employer’s convenience. The new law lowers the deductibility of fringe benefits from 100% to 50% of the total amount paid. These 50% fringe benefits include:
- In-house meals for employees
- Office refreshments
- Client business meals
- Business travel meals, including seminars and conferences
Under the new law, these fringe benefits will no longer be deductible starting in 2026.
Previous Law
Before tax reform, businesses could deduct up to 50% of the total amount paid for meals and entertainment for business purposes. Client entertainment activities and tickets were 50% deductible for face value, and tickets for charity events were 100% deductible. Meals provided for employer convenience and other fringe benefits were 100% deductible.
Impact on Businesses
The new law surrounding meals and entertainment expense deductions will require additional attention to record keeping. Consider creating separate accounts for 50% deductible business meals, 100% deductible social employee expenses, and nondeductible entertainment expenses. This will help easily identify how to treat expenses during tax time.
Contact an Anders advisor to learn how the deduction changes will affect you.
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