With its effect being immediate and unanswered questions lingering, the Tax Cuts and Jobs Act largely eliminates the deduction for entertainment expenses, and businesses should incorporate this change without delay.
Under the prior law, taxpayers were able to deduct 50% of expenses incurred for entertainment, amusement, or recreation directly related to the active conduct of a taxpayer’s business or trade. The new law, however, generally eliminates the deduction for expenses paid or incurred after December 31, 2017. Although there are a few exceptions, entertainment expenses are non-deductible as of January 1, 2018. It has been made clear that a deduction is not permitted for a client entertaining at sporting events, on the golf course, or any similar entertainment expense. What is less clear, though, is how food and beverage expenses or meals are affected. The Joint Committee on Taxation (JCT) stated “taxpayers may still generally deduct 50% of food and beverage expenses associated with operating a trade or business;” however, the JCT did not define what expenses are associated with “operating a trade or business” other than it would include meals provided to employees traveling for work. It is still unclear whether food and beverage expenses incurred in connection with an entertainment event will remain 50% deductible.
