The holidays are right around the corner. In the weeks leading up to holiday breaks, many companies will treat their employees, vendors and other associates to perks for another great year of working together.
However, new changes to the Tax Cuts and Jobs Act (TCJA) are eliminating certain tax breaks that a business could claim relating to these meals and entertainment.
What deductions are still available?
The TCJA has allowed you to deduct regular expenses related to conducting your business. In part, this deduction is still available. The new amendment essentially gets rid of deductions for business expenses that are considered “entertainment, amusement, or recreation.”
According to guidance released by the IRS, taxpayers can still deduct half of the cost of business meals, provided the meal is not overly lavish. However, things become more complicated for meals served at an event. As these regulations develop, businesses can rely on guidance released by the IRS and from tax law attorneys.
What do they mean by “entertainment?”
The IRS guidance elaborates on their meaning behind non-deductible “entertainment,” providing examples such as:
- Visiting nightclubs, cocktail lounges and theaters
- Sporting events
- Trips to golf clubs, country clubs or athletic clubs
This restriction also applies to activities engaged in solely by the taxpayer or their family.
These regulations do consider the business you are in. For example, a theater critic attending a show would not be considered entertainment because it is essential to their job. However, a tech executive taking employees to a theater production is labeled as entertainment.
What about meals associated with a non-deductible activity?
Complications arise with the new regulations when tax-deductible meals are provided in connection with non-deductible entertainment. They suggest keeping food and beverage costs entertainment as much as possible.
Keep an eye out for entertainment packages that include access to food and drinks because it is likely they are non-deductible.
These changes and guidance are likely to continue developing as we head towards Tax Day. To ensure your expenses are correctly taxed, keep detailed records and consult an experienced tax law attorney at Goldburd McCone, LLP.