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Changes in Meals and Entertainment Deductions under TCJA

When Congress enacted the TCJA in an effort to lower tax rates across the board, it was quite clear that trade-offs would have to be made – and that has certainly been the case in the area of business entertainment deductions.

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When Congress enacted the TCJA in an effort to lower tax rates across the board, it was quite clear that trade-offs would have to be made – and that has certainly been the case in the area of business entertainment deductions.

When Congress enacted the Tax Cuts and Jobs Act (TCJA) in December 2017 in an effort to lower tax rates across the board, it was quite clear that trade-offs would have to be made – and that has certainly been the case in the area of business entertainment deductions.

The business community already has one tax filing season under its belt since the TCJA came into effect, but it doesn’t hurt to be reminded of these changes now that filing for tax year 2019 is in full swing.

TCJA, in essence, repeals the deduction for business entertainment expenses, except for certain employee events, like office parties.  The deduction is allowed for recreational, social or similar activities that primarily benefit non-highly compensated employees.

Other forms of entertainment, however, are no longer eligible for deduction; that fairly long list includes:

  • Business entertainment expenditures at a social club, golf club or similar venues, including dues and fees
  • Tickets to the theater, concerts and other similar activities
  • Fees for outdoor activities, including fishing, hunting and sailing outings
  • Sporting events tickets, including skybox expenses and transportation to the event
  • Contributions to educational organizations for the right to purchase tickets to athletic events; these are no longer considered charitable contributions and so are not deductible

As far as business meals – they are still deductible, but the allowable percentage has changed in some categories.

Prior to 2018, meals provided to employees in employer-operated eating facilities were 100% deductible, but under TCJA that deduction is reduced to 50%.

A 50% deduction remains in place for business-related meals with clients and business associates as long as business is conducted, the taxpayer is present, and the meals are not considered lavish.  The 50% deduction also remains for:

  • The cost of meals incurred during business travel
  • Transportation to and from business meals
  • Meals during stockholder, director and employee meetings
  • Meals at conferences and business league meetings
  • Meals included in charitable sports packages

Business taxpayers can still deduct 100% for meals under certain conditions, including:

  • Expenses that are treated as employee compensation
  • For reimbursed expenses
  • Expenses for recreational, social or similar activities primarily for the benefit of employees
  • Expenses for goods, services and facilities made available to the general public as paid entertainment

In summary, it all boils down to businesses becoming familiar with the many categories under the meals and entertainment umbrella so that they can be sure that they are in compliance with the new law.  We may be in the sophomore filing season under TCJA, but there is still a lot for taxpayers to be aware of.

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

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