Here are some practical explanations of deductions resulting from new regulations.
2018 is the first year for application of the new laws from the Tax Cuts and Jobs Act of 2017. There is much to learn now that the law is in effect, including the impact on business meals and entertainment.
Prior to The Tax Cuts and Jobs Act of 2017, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Under the new law effective January 1, 2018, this deduction is now limited to 50%. Also, the deduction for entertainment expenses is eliminated.
The following discussion covers the current meals and entertainment deduction issue.
Meals while traveling
Meals when traveling for business are still considered 50% deductible.
Meals with client
In order for meals to be considered 50% deductible, business must be discussed during the meal. If no business is discussed, the meal is not deductible for tax purposes and thus should be treated as an entertainment expense.
Meals with coworkers
Meals with employees/coworkers where business is discussed are considered 50% deductible. If no business is discussed, the meal is not deductible for tax purposes.
Company activities, such as holiday parties, birthday and anniversary celebrations, picnics, etc. are fully deductible.
No tax deduction is allowed for entertainment, amusement or recreation expenses. This includes tickets to not-for-profit high school or college sporting events, leased skyboxes for sporting events, transportation to/from sporting events, cover charge, taxes, tips and parking for entertainment events.
Generally, a taxpayer cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.
There is an exception to this rule. Certain organizations are not treated as clubs organized for business, pleasure, recreation or other social purpose. Examples are:
- Business leagues
- Chambers of commerce
- Civic or public service organizations
- Professional organizations (e.g., bar associations)
- Trade associations
Price CPAs is prepared to support your efforts to operate your company in compliance with new tax laws and regulations and be of help in other ways. You can explore the variety of services we provide by visiting our website (www.pricecpas.com) or call us at 615-385-0686 to discuss how our services can be of value to you today.