Do you incur entertainment expenses (through business or out of pocket)?
The limitation of being able to deduct meals and entertainment expenses was introduced in the 1986 Tax Reform Act, and expanded in 1993 down to 50 percent. The recent tax reform takes the limitation a step further, and effective January 1, 2018 the deductions for business related and associated entertainment expenses are no longer available.
In prior years, you could take a client to a business dinner followed by a Spurs game and deduct 50 percent of all the monies spent, providing you passed some tax law tests on business discussion and associated entertainment. The new tax reform package eliminates a substantial chunk of the “business entertainment” associated with this night out. Although meals will continue to qualify for the 50 percent deduction, you can no longer deduct the entertainment portion.
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:
- Tickets to football, baseball, basketball, soccer, etc., games
Actions to Consider
This bill is extremely new, and we are constantly looking for guidance and interpretations on many of the changes that were made. In anticipation of these changes we recommend clients review how they are classifying meals and entertainment expenses, and establish a system so they can be identified separately. We expect further clarification on definition of “entertainment” before next filing season, and can access the deductibility before 2018 Returns are filed.