Tax Reform FAQs: Are Business Related Entertainment Expenses Still Deductible?
posted Feb 22, 2018 by Mitchell S. Halpern, JD, AEP® in the Global Tax Blog
Did you tune into our recent webinar? Don’t worry if you missed it—you can find it here- “The Impact of Tax Reform on Businesses and Individuals”. We had some great questions come in from listeners during the webinar including one on business related entertainment expenses. Many people are wondering if these are still allowed under the Tax Cuts and Jobs Act (“TCJA”).
Our listener’s question
Q: Will business meals still be deductible? Entertainment expenses too?
A: 50% of business meals remain deductible. Business related entertainment expenses are no longer deductible. Office holiday parties, however, remain 100% deductible.
More about the business and entertainment expense deduction
In the past, there were opportunities to save whenever you entertained an employee or client at a restaurant, nightclub, theater, sporting event, etc. If you are a baseball fan, for instance, and were planning to take an employee or client to a game, you would’ve been able to deduct the tickets if you met certain criteria.
How did tax reform change this?
The tax overhaul the President signed on December 22nd eliminated the 50% deduction for business related entertainment, amusement or recreation expenses.
The silver lining for businesses is that the TCJA retained the 50% deduction for client business meals (whether catered or at a restaurant).
Keep in mind these IRS rules when taking clients out:
- There must be some substantial business discussion before, during, or directly after the meal.
- You must retain all receipts.
- You are required to track time, date and cost.
- You must keep record of who was present, as well as the business reason you took him/her out.
Another listener question:
Q: Is there a provision for client relations in the new tax law that could be used for business entertainment expenses?
A: No. The TCJA explicitly states that entertainment expenses are not deductible.
What about holiday parties?
The TCJA made no changes to this - you are still able to host a fully deductible holiday party for employees provided that everyone in the company is invited.
Questions on the business entertainment expense deduction? Contact us today.