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Business Owners Beware – Entertainment Expenses Limited
By Mike Jesowshek, CPA | Taxes
If you are a business owner who is accustomed to treating clients to sporting events, golf getaways, concerts and the like, we have some bad news for you. The GOP’s tax-reform bill that President Trump signed on December 22nd of last year eliminated the business-related deduction for entertainment, amusement or recreation expenses, effective beginning in 2018.
This doesn’t mean you can’t still entertain your clients; it just means you can no longer deduct 50% of the cost of that entertainment as a business expense, making it more costly for you to entertain clients.
But all is not lost! The Act does retain a deduction for business meals that are directly related to or associated with the active conduct of your business. The term “directly related” means that actual business discussions were conducted during the meal and you anticipated a specific business benefit from the meal. The term “associated with” is more liberal and includes meals either preceding or following a bona fide business discussion. In either case, the business deduction continues to be 50% of the actual expense. Also remember that business meals must be documented, including the amount, business purpose, date, time, place and names of the guests as well as their business relationship with you.
That’s not all! In the past, employers have been accustomed to deducting 100% of the cost of food and beverages provided to employees at or near the place of business. That too has changed, and the Act now subjects food and beverages supplied to employees to the 50% limitation. But that deduction is only allowed through 2025. As of 2026, employers’ costs for food and beverages furnished to employees will not be deductible.
Meals while traveling out of town on business continue to be deductible and are also subject to the 50% limitation.
As more information/clarification from the IRS becomes available regarding this change, we will continue to update you so please stay in touch. We just wanted to get this initial information out to you!
Mike is the Managing Partner of JETRO and Associates. Mike has spent the majority of his career as an entrepreneur. He was CFO and co-founded several companies and has experience in all business stages. He set out on a mission to help businesses that have seen and lived the same experiences he did in business. This is how JETRO was built. He has been in the shoes of many small business owners out there and his end goal is to help them in one area that most business owners are not familiar with, accounting and taxes. Mike earned his Bachelor’s degree in Business Administration and Masters degree in Accounting. He is a licensed CPA in Wisconsin. He is also a Registered Tax Planner. When Mike is not in the office you can find him spending time with family and friends. He is also an avid sports fan and you can often find him rooting for his Brewers, Badgers, Bucks, and Vikings (yes, it's true).
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