Beware of the New Meals and Entertainment Expense Deductions Rules
With much fanfare right before Christmas, President Trump signed into law the new Tax Cuts and Jobs Act of 2017. Almost instantly, that signature set into motion a flurry of activity by most public accounting firms to understand and comprehend the changes instituted. Although the real nuts and bolts of the law are not completely clear yet, we’ve all seen the analysis of how this will impact our businesses.
We’ve heard about the QBI deduction, the new tax brackets and interest deduction limitation. But nobody seems to be talking about a really common issue: how does this law change the deduction for meals and entertainment?
In the article below, we take a quick peek at how the new law relates to meals and entertainment. If after reading the article you want to know more, we encourage you to sign up for our 30 minute webinar on March 9 as your Withum law-firm experts take a deeper dive into the subject matter. If you still have questions from there, please do not hesitate to reach out to your Withum representative or fill out the form below to have someone get in contact with you.
For those of us in the professional services business, entertaining clients and prospects is one of the main ways business gets done. For as long as one can remember, you have been able to kill two birds with one stone- seeing your sports team take home that win as well as work on your business deals. Under the new tax laws, you are no longer provided a 50% deduction for the price of the ticket of your guest. Since NFL football (or any other professional sports organization) is not directly related to the conduct of the taxpayer’s trade or business, you will no longer receive a tax deduction.
Previous to the new law (pre-2018), treating a client to a round of golf at a country club worked the same way as in the example above. You were able to enjoy a day on the links while also yielding a 50% deduction for the price of the golf. Under the new law, there is no deduction, again, because golf is not directly related to the conduct of the taxpayer’s trade or business.
Another hypothetical example to think about is if you land a large case and need “all hands on deck.” Your entire team works late at night to get through the details of the case and the least you can do for all of their hard work is provide dinner. Prior to the new law, this meal was 100% deductible because they were for the convenience of the employer. Under the new law, the deduction is cut in half to 50%.
Not all is lost though, under the new law, related to meals. Nominal food and beverages (bagels, coffee, etc.) are still 100% deductible, as well as your company holiday party. If you decide to throw a retirement luncheon to celebrate a long-time employee, this would also qualify for a 100% deduction.
Remember, these changes took effect January 1, 2018. You need to implement firm policies ASAP, setup new accounts and track the expenses by deductibility. We are happy to help by spending time with your firm’s accounting department to implement the changes.
|William E. Sansone, CPA, Partner
(732) 842 3113