Are Entertainment Expenses Still Deductible?
Yes, but only in certain contexts.4/13/2018
tax planning
You may have heard that the Tax Cuts & Jobs Act eliminated nearly all possibilities to write off business entertainment expenses. That is not quite true. You may be able to claim a deduction for such expenses today, but it depends on who you are entertaining. Regardless of who you happen to entertain, you will want to confer with your CPA and consider some fine print.1
Firms can no longer deduct expenses linked to entertaining clients and prospects.
In past years, you could write off 50% of those costs.1
Meals are a gray area.
If you talk business with a current or prospective client over breakfast, lunch, or dinner, is the cost of the meal still 50% deductible? Good question. As spring starts, accountants are awaiting guidance on this matter from the Internal Revenue Service. For now, firms should presume that meals centered around business conversations are still 50% deductible and keep receipts accordingly.1
In-office meals are still partly deductible.
Food served at staff meetings to your employees and food provided to workers in cafeterias is 50% deductible (although, it was 100% deductible in 2017). Outside the office, meal costs incurred while traveling on business remain 50% deductible.1,2
How about expenses for employee picnics and office parties?
While expenses for entertainment facilities and entertainment activities related to these doings are no longer deductible, recreation and food and beverage costs linked to employee events are still fully deductible.2,3
Finally, how about employee achievement awards?
Things have changed with the tax treatment of these honors as well. While the dollar limits are the same in 2018 (a maximum of $400 for a single award, a maximum amount of $1,600 of awards to an employee in a calendar year), awards must now be in the form of tangible personal property to warrant business deductions. A business cannot claim deductions for awards of cash, gift cards, concert or amusement park tickets, vacation packages, or forms of fixed-income or equity investments.2,3
The takeaway: firms need to adjust the way they track these expenses.
In 2018 and years forward, costs of business meals and costs of business entertainment activities should not be comingled. Besides this point, one last one: a chat with a tax professional about all of this is an excellent idea.
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