The Tax Cuts and Jobs Act made many changes to the meals and entertainment deduction. The largest change is that entertainment is no longer deductible. Below is a summary of what will and what will not qualify for deduction:
- Entertaining Clients:
- Meals will continue to be 50% deductible as long as they are not considered extravagant or lavish in the circumstances.
- Entertainment will no longer be deductible even if it is directly related to the taxpayer’s business. This includes any activity generally considered to be entertainment, amusement, or recreation. (sporting event tickets, etc.)
- Employee Travel Meals:
- These expenses will continue to be 50% deductible.
- Meals Provided for Employer Convenience Located on Employer’s Premise:
- Historically these expenses have been 100% deductible, however, they are now limited to a 50% deduction until 2025 when they will become non-deductible.
- Reimbursed Expenses:
- Expenses billed to a client under a reimbursement arrangement are still deductible if the taxpayer accounts the charges to a client
- Office Holiday Parties:
- These expenses will remain 100% deductible as long as they are primarily for the benefit of non-highly compensated employees.
- Expenses Treated as Taxable Compensation to an Employee:
- These will continue to be 100% deductible as compensation expense if added to an employee’s W-2.
As always, when dining with clients, it is important to be mindful that the expenditures are in accordance with bona fide business discussions and active taxpayer business to ensure the meal is deductible to the full 50%.
Please feel free to contact your local Blue & Co. advisor with any questions regarding these changes, as well as any other changes related to the Tax Cuts and Jobs Act.