Business Entertainment Deductions Reduced - By John R. Bullis, CPA
Updated: Feb 21
Effective Jan. 1, 2018, the new Tax Cuts and Jobs Act reduced business expense deductions for many types of business entertainment activities to zero.
Now, business meals associated with entertainment with clients or prospects are not deductible. Some of the business meals you used to build your business, get new clients or meet with prospective customers are no longer an expense you can claim on your income tax return.
The new law also disallows business expenses for golf, skiing, tickets to sporting events and Disneyland. If you take a business customer, a supplier or a referral source for those activities, there is no deduction even if the meeting was very important to your business.
This repeal of business entertainment will hurt some business owners more than others. But expenses directly related to business meetings of employees, stockholders, agents, or directors are still 50% deductible.
Why Congress did that is not clear. Most of the new law is business friendly.
If the cost of entertainment, amusement or recreation is treated as compensation to employees and is included as their wages for income tax purposes, it is deductible.
When the expenses for recreational, social or similar activities (including facilities) are paid primarily for the benefit of employees, those expenses are deductible. But only if the employees are not highly compensated employees.
Expenses directly related and necessary to attendance at a business meeting or convention such as those held by chambers of commerce, real estate boards and similar events are deductible, but only for 50% of the cost of food and beverages is allowed.
It seems a full deduction is allowed for the cost of parties you do for your employees. Congress knows how to have fun.
More details on these types of expenses will probably be available when IRS gets around to writing regulations (to interpret what Congress said). However you might keep in mind there are many regulations IRS is supposed to write that are still in draft form.
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