Whether you’re planning for year-end or simply catching up on your books, one thing to keep in mind is the deductibility of entertainment and meals benefits. Tax reform legislation brought some important changes to the benefits, including the elimination of the deduction for entertainment, amusement or recreation expenses and more.
What Has Changed?
Taxpayers have generally been permitted to deduct 50% of business-related entertainment and meals. In addition, employee meals provided by an employer for convenience on premises have been fully deductible. And, qualified transportation fringe benefits have been deductible in spite of being excluded from employees’ taxable income.
The tax reform law eliminated deductions for entertainment, amusement or recreation expenses, membership dues for clubs and expenses for facilities related to these items. While meal expenses associated with operating a business—including meals during employee travel—remain deductible subject to the 50% limitation, the act extended the 50% deduction limit to employer-operated eating facilities through 2025. After 2025, expenses for employer-operated eating facilities become non-deductible. The act also disallows deductions for qualified transportation fringe benefits and certain expenses to provide commuting transportation for employees.
Businesses may want to continually review and update their expense reimbursement policies. For instance, entertainment costs included by employers as taxable (W-2) wages reported to employees continue to be fully deductible.
The following are key areas in relation to meals and entertainment expenses:
Stay in the know on key deductible items with the Meals & Entertainment Guide.
Keep Deductible Expenses in Mind
A review of your expenses is key at year-end planning time, as well as anytime throughout the year. This will ensure you are properly capturing and classifying expenses. You may also want to review your reimbursement policies to ensure they align with the tax reform rules.
While tax reform may not be new, its impact is still being felt. Make sure you’re taking these rules into account and reviewing your books frequently.
Does tax reform have you confused on what is deductible and what isn’t?