I have a handful of clients who have utilized the meals and entertainment deduction over the years to treat clients and build relationships. Many are not aware that this deduction was majorly modified under the new tax laws.
Prior to January 1st, 2018, businesses could deduct 50% of meals & entertainment.
Meals were simple, basically, if you took a client out to eat and you discussed business you could write 50% of it off.
Entertainment had a little more grey area defined by the IRS as “expenses for any activity considered to provide entertainment, amusement, or recreation” Your expense had to pass some tests. It had to be ordinary and necessary, you had to discuss business before, during or after the event. If you purchased tickets for an event you could only deduct 50% of the face value regardless of how much you actually spent on the ticket. You can read all the nitty-gritty details here in the good ole’ IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses …
But none of that matters now because, on December 22, 2017, The Tax Cuts and Job Act of 2017 was signed into law. This new law disallows all entertainment expenses.
Section 3307 specifically states;
“The bill denies deductions for amounts paid or incurred for:
- an activity generally considered to be entertainment, amusement or recreation;
- membership dues for any club organized for business, pleasure, recreation or other social purposes;
- a de minimis fringe that is primarily personal in nature and involving property or services that are not directly related to the taxpayer’s trade or business;
- a facility or portion thereof used in connection with any of the above items;
- a qualified transportation fringe, including costs of operating a facility used for qualified parking, and an on-premises athletic facility provided by an employer to its employees.”
You can still deduct 50% of business meals that meet the criteria outlined in Publication 463 linked above but anything beyond that will be coming out of your own pocket!