I have posted previously providing an overview and some details regarding the Tax Cuts and Jobs Act that was signed into law in December last year and most of which took effect January of this year. Today, I want to discuss in more detail the changes included in the law related to the business meals and entertainment expense deduction.
The prior law allowed an employer to deduct 100% of the cost of providing food and beverages to employees through an on-site facility that qualified as “de minimis” fringe benefits. These benefits provided to employees at the business location for the convenience of the employer were excluded from income.
Under the new law, any of these types of expenses incurred or paid after December 31, 2017 are subject to the 50% limit on deductibility of business meals and no longer are afforded the 100% deductibility benefit they previously were. Furthermore, these types of expenses will no longer be deductible at all after December 31, 2025 under the new law.
Just as under the previous law, businesses can deduct 50% of the food costs associated with operating their business, such as meals consumed by employees while on work travel.
Regarding entertainment expenses, which were also 50% deductible like meals under the old law, the new law eliminates the ability to deduct entertainment expenses at all going forward. For entertainment expenses incurred after December 31, 2017, the new law disallows the 50% deduction for entertainment, amusement or recreation that are directly related to the business, except for the benefit of employees like office parties. This means that there is no longer a deduction available for business expenses for sporting events, theater tickets and golf club dues, for example.
Obviously, the changes related to meals and entertainment expense that the new law brought about will affect most business owners. The new tax law brought many changes, some viewed as favorable and some viewed as unfavorable to the taxpayer. It is, indeed, a mixed bag. As for meals and entertainment expense, the new tax law was not favorable to the business-owner taxpayer.
If you have any questions regarding the new tax law and how it might affect you in tax year 2018 and beyond, please contact our office.