The new Tax Cuts and Jobs Act will present tight limits on deductions pertaining to business meals and entertainment. Before this new tax reform, taxpayers generally could deduct at least 50% of expenses for business-related meals and entertainment. However under the new law, entertainment expenses incurred or paid after Dec. 31, 2017 will be classified as non-deductible unless they fall under the specifications listed in Code Section 274(e). Let’s take a closer look at the different types of expenses and the deduction rules moving forward.
Meals provided by employer for convenience purposes
This was a 100% deductible expense in 2017. The keyword here is was. In 2018, the new rules will make this a 50% deduction. Look for this to be nondeductible after 2025.
Business meals/employee travel meals
This was a 50% deduction and it will stay that way under the new law.
Office holiday parties
We won’t see change here either. This was and will remain a 100% deduction.
This deduction fell into a few different buckets before. General entertainment was a 50% deduction. The same applied to event tickets as long as they were at face value. Anything over face value took the deduction off the table. Tickets for qualified charitable events were 100% deductible. Under the new law, no deductions will apply to these expenses. Yes, you read that right — there will no longer be deductions for entertainment expenses.
Due to the above changes, it would be our strong recommendation and it would behoove you to separately track each the above respective elements in separate buckets (accounting speak — separate general ledger accounts). That way, come tax time the respective buckets have been properly grouped by their respective deductibility.
The changes being brought about by the Tax Cuts and Jobs Act are confusing and even hard to understand for many folks. However, the specific changes related to business meals and entertainment has prompted many of our clients to ask questions. These changes will affect the way many companies approach keeping their employees adequately fed and entertained for 2018 and moving forward.
Should you have questions about how this will change your business model, reach out to us today. We would be happy to be of assistance.
If your business regularly provides meals to employees, I can assist you in anticipating this changing tax impact. As always, reach out to me with any questions you may have.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com or at BRavencraft@HolbrookManter.com.