Tax Cuts and Jobs Act decimates business entertainment expense in 2018

Last week we talked about business entertainment and the relevant substantiation requirements; this week we will focus on what is changing as a result of the Tax Cuts and Jobs Act starting January 1, 2018. Under the new Tax Cuts and Jobs Act, most entertainment expenses paid or incurred after January 1, 2018 is no longer deductible. Business entertainment expenses such as expenses incurred for business meetings  and expenses for an entertainment venue are no longer 50% deductible. There are a few exceptions, which mostly addresses employee related entertainment expenses.

Starting January 1, 2018, per the new Tax Cuts and Jobs Act, the only fully deductible entertainment expenses are:

  • Items that are treated as compensation to an employee-recipient
  • Recreational, social or similar activities and related facilities primarily for the benefit of employees who are not highly-compensated employees
  • Expenses for entertainment sold to customers
  • Items that are includible in the gross income of a non-employee recipient

The new Tax Cuts and Jobs Act substantially affects Internal Revenue Code Section 274 entertainment expenses, eliminating one of the more contentious areas of business expense deductions. Business owners should take additional care going forward to minimize, if not eliminate, their exposure of this particular issue.

Employer-provided meals received a stay of execution; amounts paid or incurred for meals provided to employees and their spouses and dependents for the employer’s convenience and on the employer’s business premises, as well as amounts considered de minimis fringe benefits remain a deductible expense until January 1, 2026.

On the bright side, expenses for food and beverage associated with operating a trade or business (meals consumed by employees on work travel) remain deductible.

As always, please be sure to maintain sufficient documentation to substantiate each business deduction.

 

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Jit Lee Billings, CPA is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers and contact be contact at 978-774-7700 for consultations.

Posted by JitLeeBillings

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