As we approach the holiday season and the end of the year, you may be planning gifts of appreciation for your clients and employees. Many will choose some kind of celebratory meal or event. It’s also around this time that my clients wonder what dining and entertainment expenses are still deductible for tax purposes.
The Tax Cuts and Jobs Act eliminated or reduced some business meal and entertainment deductions, and in other cases, the deductions did not change.
Let’s sort through what has changed for tax purposes.
Your holiday party is safe
The good news is, the holiday party you are planning for your employees is still 100% deductible. Important caveat: The party must primarily be for the benefit of non-highly-compensated employees (and can include their families). If customers also attend, holiday parties may only be partially deductible.
What’s changed, generally speaking
Entertaining clients: This used to be 50% deductible. Now it is not deductible—that’s a big 0% deductible, folks. This means that if you pay for a client’s golf game, courtside tickets, or concert tickets it is no longer deductible. Some more examples specified by the IRS of non-deductible entertainment expenses include:
- Night clubs
- Cocktail lounges
- Theaters
- Country clubs
- Golf and athletic clubs
- Sporting events
- Hunting/fishing
Meals with employees and snacks for them: This used to be 100% deductible. Now it is 50% deductible. Loosely described as “fringe benefits” and “non-compensatory” (they don’t meet the definition of additional pay for employees). Some examples:
- Meals for a lunch meeting on the business premises with your employees (not with your business partners or clients).
- Snacks in the office for employees. The light fare like coffee, granola bars, soda, water, donuts, and most other common snacks.
- Meetings that include a lunch fee like a Chamber of Commerce event.
For the grey areas, contact us with your questions
It’s true and you see it all the time: Food and entertainment is a large part of doing business no matter what business you’re in. Tax reform has small business owners of all stripes wondering what still qualifies and what does not anymore.
What about the food served by a realtor at an open house? What about a team-building or retreat event? What about paying for a business lunch that I have with a client? (The answer is yes to all.)
If you still have questions and need help figuring out your meal and entertainment expenses and deductions, contact us for guidance!
Additional Sources:
How to Deduct Meals and Entertainment in 2019
How to Handle Meals and Food-related Expenses
