The 2018 Tax Reform made a lot of changes to the meals and entertainment deductions. Here’s a short list of what died on January 1, 2018, so you can get a good handle on what’s no longer deductible:
- Entertainment and meals while entertaining included in the cost of the event are not deductible
- Tickets to football, baseball, basketball, soccer, etc. games
Meals during the course of entertainment will be deductible if purchased separately from the entertainment event.
Employers who for their convenience provided business meals for their employees that were 100 percent deductible but are now 50 percent deductible beginning January 1, 2018, include:
- Meals served at required business meetings on your business premises
- Meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office
- Meals served to employees who are required to staff their positions during breakfast, lunch, and or dinner times
- Meals served to employees at in-office cafeterias
- Food and meal costs for employees who are required to live on premises for the convenience of the employer
For 2018, you need to create accounts in your chart of accounts that separate non-deductible meals and entertainment, meals subject to 50% deduction, and entertainment expenses that are 100% deductible.
As you may know, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.
The good news is that tax code Section 274(e) pretty much survived. Under this section, you can deduct:
- Entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes
- Expenses for recreational, social, or similar activities (including facilities therefor)primarily for the benefit of employees (other than employees who are highly compensated employees)
- Expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent)
- Expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law limits expenses for food and beverage to 50 percent)
- Expenses for goods, services, and facilities you or your business makes available to the general public
- Expenses for entertainment goods, services, and facilities that you sell to customers
- Expenses paid on behalf of nonemployees that are includible in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award
When you are considering the above survivors of the tax reform’s entertainment cuts, you will find good strategies in the following:
- Renting your home to your corporation
- Taking your employees on an employee party trip
- Partying with your employees
- Making your vacation home a deductible entertainment facility
- Creating an employee entertainment facility
- Deducting the entertainment facility, because the facility use creates compensation to users
If you would like help implementing any of the strategies above, please don’t hesitate to call me on my direct line at (513)509-7829.