Prior to the Tax Cuts and Job Acts, a business owner generally could deduct 50% of business related meals and entertainment expenses. Meals provided to an employee on the business premises for the convenience of the employer were generally 100% deductible.
These expenses are treated differently under the new tax law.
How will meals and entertainment expenses be affected?
Entertainment expenses are now completely nondeductible, regardless of whether they are directly related to, or associated with, the taxpayer’s business, unless an exception applies. One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees.”
Under the new tax law:
- Office holiday parties remains fully deductible.
- Expenses for entertaining clients (including tickets for sporting, concert, and other events) were 50% deductible. The 50% deduction included the event tickets up to face value. Beginning January 1, 2018, these expenses are nondeductible.
- Business meals and employee travel meal expenses remain 50% deductible.
- Expenses for meals provided for the convenience of the employer generally were 100% deductible. Beginning 1/1/2018, they are 50% deductible. After 2025, they are nondeductible.
What should a business owner do to prepare for this change?
Update your general ledger to segregate expenses into accounts earmarked as 100%, 50%, or nondeductible. Having the expenses categorized at the time they are incurred will save a lot of effort come tax time. This practice will also allow your tax preparer to clearly identify which expenses are deductible and avoid errors in your tax filing.
We’ve got your back
At KRS, we’ve been tracking tax reform legislation closely and are ready to assist you in your tax planning and preparation so that you’re in compliance under the reformed tax law. Don’t lose sleep wondering what impact the new tax rules will have on you, your family, or your business. Contact me at 201.655.7411 or mrollins@krscpas.com.
Before the 
Tax Cuts and Jobs Act (“TCJA”)
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The Internal Revenue Code provides the rental of a property that is also occupied by the owner (“host”) as a residence for less than 15 days during the year is not taxable. The host is considered to use the property as a residence if they use it for personal enjoyment during the tax year for more than the greater of (1) 14 days or (2) 10% of the total days during the year they rent it to others.
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