The Tax Cuts and Jobs Act changed the deductibility of business-related meals and entertainment. A summary of changes is included below; however, additional rules and limitations may apply to your situation.
Deductions for business-related meals and entertainment
|
Deductible under previous law |
Deductible under new law |
| Meals: |
|
|
| Business related |
50% |
Unclear |
| Convenience of Employer |
100% |
50% |
| Traveling |
50% |
50% |
| Entertainment |
50% |
0% |
| Employee event |
100% |
100% |
Actions to take now
Businesses may want to consider changing the accounting for these expenses now in order to be ready for 2018 tax return preparation. Below are a couple of examples:
- If entertainment expenses have historically been recorded to the same account as meals, you should consider recording them to a separate account since they will be non-deductible on the 2018 tax return.
- If employee meal expenses are recorded to an employee relations account rather than a meals account, you should consider recording them to a separate account in order to segregate and make them easily identified as employee meals, which are subject to the new 50 percent limitation.
Further clarification to follow
The IRS is expected to release guidance during 2018 to clarify uncertainty around other business meals, such as those with clients, and whether these will remain at 50 percent deductibility or if they are being classified as entertainment and therefore no longer eligible for deductions. Due to this uncertainty, it would be beneficial to record these costs in a separate account so they are more easily identifiable for future review.
Questions?
For more information on these changes, please contact your AGH tax professional, or Shawn Sullivan using the information below.
Executive Vice President
Tax Services
Shawn leads the firm’s tax group and serves on AGH’s board of directors. In addition to enhancing business performance to minimize tax consequences, he has extensive experience in mergers and acquisitions, international tax and business structuring. Shawn has public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, automotive, wholesale distribution, real estate development and construction industries.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.