Growing Your Business

Tax Reform Law Severely Limits Business Entertainment Deductions

by
Sonu Shukla
on
4/18/2018
Tax Reform Law Severely Limits Business Entertainment Deductions

The phrase “the cost of doing business” generally refers to something negative, and for business owners, that definitely applies to the changes that the new tax law has made to entertainment expenses. That's because companies that had previously been able to write off the cost of treating clients to fun events as a business expense will no longer be able to do so.

This is definitely bad news for business owners, who know that the tax laws changing won't prevent clients who've previously been hosted from expecting the good times to continue. If they've previously enjoyed the benefits of attending sporting events or being taken on golf outings, they're probably going to expect you to continue, despite the fact that effective January 1, 2018, your ability to deduct 50% of the cost of recreation, entertainment or amusement expenses disappeared.

The same is true for employees who you may previously have treated to meals at work. Where companies had previously been able to deduct 100% of the cost of food and beverages at or near the workplace, the deduction for that expense was cut in half to just 50%, and even that is limited: after the end of 2025, that deduction will go away completely.

The good news is that there are still some entertainment expenses that you can get a partial deduction on, but they are limited to business meals that are directly related to or associated with actively conducting your business. Directly related means that you have to have talked about the business and had an anticipated and specific benefit as a result of having those conversations, while associated with is a bit looser, and can just refer to meals either before or after a real business discussion. The deduction allowed is half of the actual expense, and in order to qualify, you need it to be well documented, including where and when the meal took place, what its business purpose was, who was there, what their business relationship was to you, and of course the total amount.

The deduction for meals is still in place for those who have to travel out of town for business. It is also limited to 50%.

Changes that seem small on paper can have a big impact on how you do business. If you need to review your entertainment and deduction strategy, contact a qualified CPA for review.

Sonu Shukla, CPA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

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Sonu Shukla

Sonu Shukla

Sonu Shukla is a CPA, accountant, and tax preparer based in Orlando, FL. Sonu Shukla can assist you with your tax preparation and planning needs. Sonu is more than just another accountant in Orlando, Florida; he is a small business owner himself. It is a position in life that grants him the perspective and insight to emphasize with his clients, bringing them the best service possible. A Certified Public Accountant and a Certified Financial Planner, Sonu possesses the skills, education and experience to demonstrate unerring business acumen and passionately planned financial strategies. Being proactive is key for Sonu, tailoring highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out.

SONU SHUKLA, CPA, P.A.
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