Many business owners understand that a good meal or great entertainment can seal the deal on their professional relationships. At one time, it was easy for businesses to simply write these expenses off on their taxes. However, new tax reform laws have done away with the business meal and entertainment write-off. Learn what the once-in-a-generation tax change at the end of 2017 means for your business.
With the former tax law, businesses could deduct 50 percent of their meals and entertainment from their taxes. In some cases, where a specific exception applied, businesses could write off their entire meals and entertainment expenses as a deduction. The IRS has specified that meals are food or beverages, and entertainment is entertainment, amusement, and recreational value. This also included holiday parties, snacks, and beverages considered as fringe benefits.
The new law has eliminated the entertainment deduction for most businesses. Fortunately, for some businesses, there’s an exception to the rule. Here are the (9) meal and entertainment exceptions your business should know according to Forbes:
1. If there’s a business purpose, your food and beverages for employees can be deducted
2. Meals and entertainment treated as compensation
3. Expenses reimbursed by customers are fully deductible
4. Recreational expenses for employees are fully deductible (i.e. picnics)
5. Actual business meetings of employees or shareholders are fully deductible. (For C corps and S corps that hold periodic board meetings, the new law offers significant tax savings)
6. Business league meetings (e.g. must be a qualified 501 c(6) nonprofit and LLCs)
7. Food and beverages that are given to the public
8. Entertainment purchased to be sold to customers (not subject to limits)
9. Expenses for non-employees (i.e. contractors or other parties)
However, business meals with clients continue to be 50 percent deductible, but there are new stipulations. The meal must take place between you, an employee, and a prospective client. The meal expense cannot incur at a nightclub, sports arena, lounge, or be a lavish or extravagant meal.
There is no easy way around tax laws and they can be quite complex. If you need to discuss your business meal and entertainment expenses, you’re invited to contact us at Foster Financial CPA for more details today!