Changes to Meal & Entertainment Deductions Under the Tax Cuts and Jobs Act

Blog Post Changes to Meal & Entertainment Deductions Under the Tax Cuts and Jobs Act

Changes to Meal & Entertainment Deductions Under the Tax Cuts and Jobs Act

December 2018

Under the previous tax law, most expenses incurred that were related to business meals and entertainment could be deducted but were subject to a 50% limitation for tax purposes. The Tax Cuts and Jobs Act (TCJA) has changed this law—here’s what you need to know:

  • The deduction for entertainment has been completely eliminated, even if directly related or associated with the conduct of business. There are a few exceptions, but for tax and business professionals alike, this raises many questions on what is actually considered “entertainment, amusement, or recreation” and how to treat meals and entertainment expenses.
  • The deduction for business meals remains mostly unchanged. To deduct expenses for business-related meals, the expense must be an ordinary and necessary expense that it is directly related to or associated with the active conduct of business.
  • Some business expenses previously allowed are not any longer. See below for common business expenses and their deductible amount for the 2018 tax year.

Meals and Entertainment Expense_TCJA Graphic

  • You must keep accurate records of the expenses that will be claimed as deductible going forward. We recommend keeping a record of the following for each expense:
    • Amount, time, date and place of expense
    • Business purpose
    • Business relationship of the expense, including names of the people involved

With these changes, we encourage you to consider altering the way you keep your accounting records. To properly classify your expenses, think about setting up new accounts for each category. This will make things much more efficient when it comes time to prepare your business’s 2018 tax return and provide more accuracy (reducing the chance of an audit). It’s also a good idea to review prior-year expenses for meals and entertainment that were deducted so you can get a better picture of how these changes to the tax law may affect your bottom line.

 

Questions?

Our team is up to speed on these and other changes created by the Tax Cuts and Jobs Act. If we can answer any questions or clarify how the new law could impact your business, please contact us at info@richeymay.com.