The 2017 Tax Cuts and Jobs Act made big changes to the deductibility of meals and entertainment expenses for businesses. This may result in an increase to your tax bill. Let’s take a look at how things stand now.
Travel meals 50% deductible
Meals in travel status remain 50% deductible. Note that if meals are charged to a hotel room while traveling, the meals portion of the bill will need to be split out when the bill is recorded in your books.
Recreational and social activities for employees 100% deductible
Expenses for recreational and social activities such as holiday parties and gym fees are still 100% deductible. As before, club dues and expenses that only benefit highly compensated employees are not deductible.
Entertainment 0% deductible
Expenses for entertaining current or prospective clients are no longer deductible. Under the old law, businesses could deduct 50% of the expenses for golf, sports events, fishing trips and spa visits.
Meals for convenience of employer 50% deductible until 2025
Under the old law, if a business brought in food for employees so that they could get more work done, businesses could deduct 100% of that cost. They could also deduct 100% of the cost of meals provided at an onsite cafeteria or other dining room. Now, only 50% of those costs are deductible. In 2025, this deduction goes away completely.
Business meals 50% or 0% deductible?
Under the old law, taking a current or prospective client out to dinner, lunch meetings with co-workers and luncheon meetings were 50% deductible. As the law was passed in December, this deduction seems to have gone away, although that does not appear to have been the intent of lawmakers. A technical correction could bring this back, but it’s unclear if or when that might happen.
Overall, these changes may increase your tax liability. The changes to deductibility of meals and entertainment expenses may also change how you run your business, so it may be wise to look at the impact this will have on your bottom line.
Do you have questions about the new tax law and which meals and entertainment expenses are deductible? Call our office and we’ll help you out!