What Happened to Entertainment Deductions in 2018?

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What Happened to Entertainment Deductions in 2018?

By Toni Schwahn, CPA, CFE

On December 22, 2017 congress passed the Tax Cuts and Jobs Act (TCJA). This legislation was far reaching and changed the rules for many tax entities. One of the changes in the TCJA affects the deductions for Meals and Entertainment.

The TCJA eliminates the deduction for entertainment expenses. Prior to the enactment of the TCJA, taking clients or prospects to things like sporting events, the theater, concerts, or fishing trips were all deductible under Meals and Entertainment. These types of activities are no longer deductible beginning in 2018.. The act also eliminates deductions for expenses incurred for entertainment facilities such as a skybox or a membership in a club organized for business or social purposes. Any meals or drinks purchased during these entertainment activities is also eliminated.

You may ask yourself, well what is left to be deducted after all of the above eliminations. . Below is a summary of the deductibility of business meals:

- Meals at an entertainment facility (i.e. sporting event)                             Non Deductible

- Meals with clients/prospects with substantial business deductions       50% Deductible

- Meals with clients/prospects without substantial business deductions Non Deductible

- On-premise meals provided for the convenience of the employer         50% Deductible

- Meal reimbursements for employees while traveling on business          50% Deductible

- Free meals to employees from an on-site dining facility                            50% Deductible

- Holiday party of social events for employees                                               100% Deductible

Clients should keep in mind a few things when reviewing their 2018 policies. The effective date of these changes are for expenses incurred after December 31, 2017 without any regard to the client’s year end. Businesses will also need to consider the impact of the new law on sponsorships and charitable events. Sponsorships may include a round of golf or game tickets with the advertising benefits. Under the TCJA, the golf or game tickets will be non-deductible with the remainder of the cost still deductible as advertising. 

About the Author:

Toni Schwahn, is a Partner at Whaley Hammonds Tomasello, P.C., located in suburban Atlanta. Her practice includes tax, accounting and consulting services for mid-sized businesses with a special focus on the professional services industry.