Tax & Accounting News

Did You Entertain Clients at the NBA Finals? 2018 Tax Reform Might Hurt Your Entertainment Budget

Did You Entertain Clients at the NBA Finals? 2018 Tax Reform Might Hurt Your Entertainment Budget

Taking your clients or employees out to a basketball game is a great way to bond with them and this year's NBA finals had everyone at the edge of their seats. Well, the game's over and the Warriors mopped the floor with the Cavaliers. The Warriors handily defeated the Cavs four games to zero so it's fairly on point to make an analogy between your entertainment budget and the 2018 tax reform in that, unfortunately, your budget is the Cavs in this case.

The multitude of sweeping changes to the tax code with the 2018 “Tax Cuts and Jobs Act” has largely been hailed as a boon to business taxpayers, especially small businesses. But it hasn't been without faults and confusion for small business owners who are grappling both the business and personal provisions of the massive tax reform. Many people feel that they've been shortchanged with the changes made to the code, namely the death of the business entertainment deduction.

When you're a small business owner pouring everything you've got into your company, it doesn't matter if you own a local diner competing with restaurant chains or you make a living online with zero employees: you're more than likely not getting the colossal advertising space at major sporting events that enable large corporations to get a new campaign in front of millions of eyeballs instantly. You can still deduct 100 percent of your advertising and marketing costs like printing flyers and business cards, buying print and online ads, hiring a marketing consultant, and other related expenses. But all entrepreneurs know that traditional advertising only accounts for a fraction of success in business: it's all about building up professional relationships with clients and colleagues. The payoff may be immediate or take a while to manifest, but you're not building up those relationships by increasing your ad budget.

If you got season tickets, you're taking that attorney who can answer your burning questions out to the game. Found a package deal for dinner and a show? You're grabbing two sets for yourself and that prospect you're trying to impress. And unfortunately, the tax reform completely nixed the deduction for these things. While there's been a lot of confusion surrounding the meals deduction, it's still safe in that you can still deduct 50 percent of the costs if you're traveling for business. But if you planned on taking your client out to a show, those tickets are not deductible.

The only provision pertaining of the business entertainment deduction that survived the 2018 reform is office parties. If you have employees plus an actual workplace, you can still deduct parties thrown on the premises so long as they're intended just for employees. So if you wanted to reward your team for robust sales this quarter, you need to keep it in the office instead of taking them to the court to watch the Warriors annihilate the Cavs if you want to see any difference on your tax bill.

This definitely spells bad news for solopreneurs and business owners in various stages of growth who were looking forward to further strengthening their business relationships. While you shouldn't necessarily let this piece of the tax reform stop you from having a good time with your colleagues and clients, just be aware that while your entertainment expenses get reported on your books they will, unfortunately, no longer equate to a tax benefit.

And if you follow basketball and are looking at what's happening with LeBron James leaving the Cavs, it can certainly feel like a similar effect is going on with your entertainment budget in 2018 onward. But just like how he'll be an asset to a new team? You may have lost the business entertainment deduction with the 2018 tax reform, but if your business meets certain conditions you just gained a brand new deduction to the tune of 20 percent of your profits if it's a pass-through entity. Since most small businesses are pass-throughs, certain solopreneurs and new professional practices may score a slam dunk. With this much complexity, it is wise to seek advice from an accounting professional.  

Frank Jenkins, CPA writes for CountingWorks, an accounting news and advice website. Reach him at [email protected].

share this post
Search for matches...
Frank Jenkins Jr

Frank Jenkins Jr

Frank Jenkins Jr. is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, accounting, audit & assurances. "I genuinely care about our clients because I have a personal connection with them. This job requires me to multi-task and work under tight deadlines. I get great professional satisfaction from balancing firm and client commitments while building a strong team here at AJC."

ADAMS, JENKINS & CHEATHAM
0 reviews

Virginia

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts