The Tax Cuts and Jobs Act (TCJA) made changes to the deductibility of certain meals and entertainment expenses. Not only might these noticeable changes affect a taxpayer’s decision to buy such goods or services, but they also may require a noticeable change in the entire accounting and tracking of such expenses. The TCJA changes are outlined below, followed by guidelines taxpayers should think about implementing to properly account for these changes.
Previously, the deduction for in any other case allowable entertainment, entertainment, or enjoyment expenses was limited by 50 percent of the total amount paid or incurred. The TCJA eliminated this 50 percent deduction for amounts paid or incurred after December 31, 2017. However, amounts for expenditures that were previously fully deductible under specific exceptions are retained under the TCJA. Amounts paid for membership in clubs organized for business, social, or recreational purposes aren’t (and, in general, weren’t previously) deductible. The TCJA repealed an exception to the general guideline for the allowance of club fees used to further a taxpayer’s trade or business.
These organizations include but aren’t limited by, business leagues, chambers of business, real estate planks, or planks of trade. The TCJA made sure changes to the tax treatment of food or drinks provided to employees. For Employees: The TCJA didn’t change the tax treatment of food or beverages provided by an employer. 1. Meals provided as a de minimis fringe advantage.
For Employers: The deduction for amounts paid or incurred for in any other case allowable food or drink expenditures are normally limited by 50 percent. Certain exceptions to this general rule allow a company to take a full deduction for such food and drink costs. The TCJA didn’t change several exceptions; however, changes were made to the deduction for food or beverages excluded from an employee’s income as talked about above.
Prior to the TCJA, the deduction for expenditures satisfying the requirements of the first or second categories above wasn’t limited, while the deduction for quantities falling in the third category were generally limited by 50 percent. Now, amounts incurred or paid in the first two categories above are 50 percent deductible.
Further, after December 31 the TCJA provides that portions paid, or incurred, 2025, that fall into the third and second categories above are no longer deductible. The 50-percent deduction remains for meals with clients provided business was conducted and such expense wasn’t lavish, extravagant, or considered entertainment, amusement, or recreation.
In addition, no change was designed to the 50-percent deduction for meal costs during business travel. The changes may have an effect on a taxpayer’s purchasing decisions above. 3. Nondeductible entertainment – All entertainment, recreation, and leisure expenditures not achieving one of the above-mentioned categories. Such nondeductible expenses can include entertaining at night clubs, sticktail lounges, theaters, country clubs, golf, and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips.
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It’s unclear at this point, absent IRS guidance, whether business meals with clients at such entertainment occasions will be 50 percent deductible. Make sure to visit BKD’s Tax Reform Resource Center for more information on the new law. Contact your respected BKD advisor for help identifying the result of these new food and entertainment provisions may have on your specific situation.
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