H.R. 1, known as the Tax Cuts and Jobs Act, has changed the deductibility of certain meals and entertainment expenses. Prior to 2018, a taxpayer could deduct 50% of business meals and entertainment and 100% of meals provided on the employer’s premises and for the convenience of the employer. Under the act, taxpayers are still generally able to deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel). For amounts incurred and paid after December 31, 2017 and until December 31, 2025, the act expands this 50% limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and for the convenience of the employer. Such amounts incurred and paid after December 31, 2025, will not be deductible. No change was made to the rule allowing a 100% deduction for employer-provided social or recreational expenses for the benefit of employees who are not highly compensated, such as a summer picnic or holiday party.
The act, effective January 1, 2018, also disallows a deduction for (1) an activity generally considered to be entertainment, amusement, or recreation; (2) membership dues for any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items.
For comparisons, see the table below.
In order to maximize tax deductions and save time on tax preparation, SIMA recommends setting up separate general ledger accounts for business meals (50% deductible), entertainment (nondeductible), and recreational/social employee expenses (100 percent deductible).
If you have any questions, be sure to contact a member of our team at 804-285-5700 or send an email to accounting@simafinancialgroup.com.
