Our clients have been asking us all tax season, “What’s the deal with entertainment expenses? I hear they’re no longer deductible?” The short answer is yes, they still are. However, there are some nuanced changes that affect the amount of these deductions as well as revoking certain types of entertainment expense entirely. To paraphrase the words of Dua Lipa, “We’ve got new rules we got ‘em”.
The following matrix compares the old rules with the new rules. You’ll note that the biggest change is for the costs of entertaining clients. Event tickets used to be deductible. Under the new rules, you can still take your clients to an Eagles Game, but the IRS will no longer help to underwrite the cost vis-à-vis a tax deduction. You’ll also note that meals provided for the convenience of the employer are now limited to 50%. Barring further action by Congress those meals will be nondeductible after 2025.
Since office holiday parties are the only remaining 100% deduction, perhaps the message is that if you want to deduct 100% of your meal expenses, every employee meal should be a party? Just remember to hold off on the office wine bar until after the piñata. Of course, this isn’t the spirit of the law and we are not recommending that you justify an office party every week.
Businesses should keep the new rules in mind as they plan their 2018 meals and entertainment budgets. Please reach out to us if you have questions or to see how we can help you navigate these new rules to ensure that you’re enjoying the maximum benefit as well as remaining compliant with these changes to entertainment expenses.