Disallows Deductions for Most Entertainment Expenses. Effective for amounts paid or incurred after
12/31/17, the TCJA disallows deductions for the most common business related entertainment expenses,
including the cost of facilities used for most business
activities. Specifically, nondeductible treatment now applies to the
cost of tickets to sporting events; license fees for stadium or arena
seating rights; private boxes at sporting events; theater tickets; golf
club dues; company golf outings for customers; hunting, fishing, and
sailing outings; and so forth. Some business entertainment expenses are
still deductible, but only in very limited circumstances.
Allowed for Eligible Food and Beverage Expenses. After the TCJA, the most common business related
meals are still 50% deductible, and the time honored rules for
proving that meals are business related still apply. In addition,
food and beverages that fall under certain exceptions are still 100%
deductible after the TCJA. Although uncertain at this point, it appears
businesses also can still deduct 50% of food and beverage expenses
incurred at entertainment events, but only if business was conducted
during the event or immediately before or after. These rules can get
tricky, and future IRS guidance may change things.
Conclusion. Consider assessing your current expense allowance
policies to determine if the unfavorable TCJA provisions warrant
changes; especially for entertainment expenses incurred by employees,
which are now nondeductible (unless reported as taxable compensation).
Accounting system changes may be necessary to separately track employee
entertainment expenses and business related
meal expenses, which are still 50% deductible.
Please contact us if you
have questions or want more information. The current tax rules for
business related meal and entertainment expenses are complicated, but
we can help you plan ahead to get the best
treatment for your business's expenses.