Tax Reform Alert: Entertainment Deductions That Were Eliminated & Survived
After months of intense negotiations, the President signed the “Tax Cuts And Jobs Act Of 2017” on December 22, 2017 – the most significant tax reform since 1986! It is no overstatement to say that this mammoth tax bill will have a significant impact on virtually every individual and business taxpayer.
As you likely know, you may no longer deduct directly related or associated business entertainment effective January 1, 2018.
Common forms of directly related and associated entertainment that are no longer deductible include business meals with clients or prospects, golf, football games, and similar business-building activities.
That’s the bad news.
The good news is that tax code Section 274(e) pretty much survived the entertainment bloodletting. Under this section, you continue to deduct the following:
- entertainment, amusement, and recreation expenses you treat as compensation to employees and that are included as wages for income tax withholding purposes;
- expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are highly compensated employees);
- expenses that are directly related to business meetings of employees, stockholders, agents, or directors (here, the law limits expenses for food and beverages to 50 percent);
- expenses directly related and necessary to attendance at a business meeting or convention such as those held by business leagues, chambers of commerce, real estate boards, and boards of trade (here, the law also limits expenses for food and beverages to 50 percent);
- expenses for goods, services, and facilities you or your business makes available to the general public;
- expenses for entertainment goods, services, and facilities that you sell to customers; and
- expenses paid on behalf of nonemployees that are includible in the gross income of a recipient of the entertainment, amusement, or recreation as compensation for services rendered or as a prize or award.
When you are considering using the above survivors of tax reform’s entertainment cuts, you will find good strategies in the following:
- Renting your home to your corporation.
- Taking your employees on an employee party trip.
- Partying with your employees.
- Making your vacation home a deductible entertainment facility.
- Creating an employee entertainment facility.
- Deducting the entertainment facility, because facility use creates compensation to users.
Check out our other blog posts on how the new tax reform will impact individuals and businesses!
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