Just when you started to have fun in your business, the new tax law comes along take away all the fun deductions from your business expenses. One of the benefits that business owners get to write off is qualified business meals and entertainment expenses. Previously, the tax law allowed 50% deduction for meal and entertainment expenses and in some cases; you could even get 100% of these deductions.
These expenses were always a sticky point for business owners and the IRS. Business owners were not clear on what was qualified as business meals and what documentation to keep. The IRS knows that was an easy target for audit adjustment because people messed it up all the time.
But now, 2018 going forward, lawmakers simply removed business deductions that directly related or associated with entertainment.
For example, during 2017, you could take a prospect or client to a business dinner followed by the theater or a ballgame and deduct 50 percent of all the monies spent, providing you passed some tax law tests on conducting some form of a business discussion.
Now, what appears to be a business-friendly tax reform package, you find that lawmakers cut a big chunk of business entertainment. You can no longer deduct entertainment that has on its mission the generating of business income or other specific business benefits.
The 2018 tax reform prohibitions against deductible entertainment are true regardless of your business discussions, negotiation, business meetings, or other bona fide transactions.
The list of expenses that lawmakers removed includes business meals with clients or prospects, golfing, skiing, Tickets to sporting events—football, baseball, basketball, soccer, etc. and Disneyland.
Sorry to be the bearer of bad news, I am also sad about this too. Now, what can we do?
The good news is, meal costs that were 100 percent deductible for perhaps a half of a century or more are now limited to 50 percent, and that 50 percent become a big zero deduction beginning January 1, 2026.
Employee meals that were 100 percent deductible are now 50 percent deductible beginning January 1, 2018, includes:
- meals served at required business meetings on your business premises;
- meals served at required business meetings in a hotel or other meeting place that passes the test for business premises but is located outside of the office;
- meals served to employees who are required to staff their positions during breakfast, lunch, and/or dinner times;
- meals served to employees at in-office cafeterias; and
- food and meal costs for employees who are required to live on premises for the convenience of the employer.
Also, your travel meals still remain at 50% if you are able to meet rules for business travel expenses.
What you can do for this year is to change your chart of accounts include these different types of meals. You can create new categories for employee meals (that meets the requirements above), travel meals, and non-deductible meals.
P.S. There are talks that lawmakers may change their mind on this one, so still keep track of all business meals, you can add these to your non-deductible meals category until law markers figure out how what to do with this one.
For information on how to implement, these money-making steps schedule a free consultation here
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