With the Tax Cuts and Jobs Act comes stricter deduction limits for small businesses, affecting spending on any dining, grocery, celebrations, and more. For companies that rely on these benefits to attain and retain employees and customers, this may be a big blow.
Here are some of the changes that you can expect when it comes to meals and entertainment deductions:
Change #1: Expenses for Entertaining Clients Cannot Be Deducted at All
Taking a client out for dinner, drinks, or a show? In the past, you could write off 50%. But under the new rules, client entertainment expenses are a thing of the past. This means if your business incurs expenses for amusement, you can no longer claim a 50% deduction. These activities include things like golf outings, sporting events, concerts, hunting and fishing trips, and country club dues.
Does eliminating the deduction for entertainment expenses apply to business meals? Without further guidance from the Congress or The Department of the Treasury, it’s best to stay on the safe side and consider meals with business associates, clients, customers, prospects, or anyone other than employees non-deductible.
Change #2: Employee Meals Are Half as Tax-Deductible as They Used to Be
In the past, meals provided for team members at the convenience of the employer were 100% deductible. Starting in 2018, employers will only be able to deduct 50% of what they spend to feed team members.
Examples of these types of meals include catered lunches, company cafeterias, meals for company meetings, or food provided to enable an employee to work overtime.
What’s more is that, under the new laws, the deduction will be gone completely after 2025. So, unless Congress makes future changes, employers will no longer be able to deduct on-site employer-provided meals at all.
The following remains intact:
Deducting travel-related meals.
Meals while traveling outside of a normal commute in your business were deductible by 50% and that continues to be the case. More specifically, these are expenses while traveling for legitimate business meetings. Examples would include education or training conferences, or a Board of Directors retreat, checking on a rental property, a business location, or even going to meet a prospect or vendor. This includes food, tip, and even the bar tab.
However, it’s true that if you are ALSO going to take out a client or prospect while traveling, their portion of the meal would be “questionable” and may not be deductible.
The Office Party Remains Intact
The new tax law still permits a full 100% deduction for expenses associated with recreational or social activities for employees, including holiday parties, summer outings, team bonding, etc. This would not include an event that is primarily for clients even if employees attend. Basically, this means, you need to be able to prove that the event primarily benefits the employee.
Keep Good Track of Food and Entertainment Expenses
With these major tax-law changes, dining and or event and office food can add up to be a significant expense on your books. So, be sure to keep good track of your food and entertainment expenses!
Are you a small business that is looking to outsource your accounting? If you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email email@example.com to make an appointment.