Meals and Entertainment Changes
Under Tax Reform

mealsThe Tax Cuts and Jobs Act of 2017 contains many changes effecting individuals and businesses. A particular area of angst that is going to require proper tracking by businesses is the stricter limits on the deductibility of meals and entertainment expenses. It is more important than ever to understand the difference so you can properly categorize these expenses in you records for 2018 and beyond. The differences are as follows:

Entertainment:
In 2017 and prior, the cost of any activity generally considered to be (1) entertainment, amusement or recreation; (2) membership dues for any club organized for business, pleasure, recreation or any other social purpose or (3) a facility or portion thereof used in connection with any of the above were 50% deductible. Tickets to a qualified charitable event were 100% deductible.

BEGINNING IN 2018 NO DEDUCTION IS ALLOWED FOR THESE ENTERTAINMENT COSTS.

Note that office parties are still 100% deductible.

Meals:
In 2017 and prior, businesses were allowed to deduct 100% of the cost for meals provided to employees for the convenience of the business provided they were excludible from the employees’ gross income as de minimis fringe benefits, otherwise all other meals were subject to a 50% limitation. Meals included meals purchased for in house consumption, business meals with clients or staff – any business related meals were included in this category.

BEGINNING IN 2018 – ALL OF THESE COST ARE SUBJECT TO THE 50% LIMITATION.
Starting in 2018, businesses should be maintaining three separate general ledger accounts as follows:

  • Entertainment – For cost that are now 100% non-deductible
  • Meals Expense – For all cost that are now 50% deductible
  • Travel Cost – All costs related to business travel

All business travel is 100% deductible and should not be included in either the Entertainment or Meals Expense accounts. If you have questions related to the deductibility of specific expenses, please give our office a call.

Wayne Martin, CPA, CGMA