You’re thinking about hosting your biggest client for a round at the country club. You may want to schedule a meeting with your accountant or CPA first.
The golf course or luxury boxes at sporting events and concerts are routinely used to facilitate deals, but new proposed regulations about to be added by the IRS to the Tax Cuts and Jobs Act (TCJA) won’t allow you to count all that wining, dining, and entertaining as business expenses on your taxes.
No More Entertainment Deductions
According to a rule proposed by the IRS on February 26 of this year, businesses will no longer be allowed to include entertainment as an expense. That means hosting a client at an event that is generally considered entertainment, amusement, or recreation is no longer a legitimate deduction.
For example, if you host your favorite Knoxville CPA for work purposes in a luxury box at Neyland Stadium, the cost for that box is not a valid business expense. In the summary of the proposed addition, officials with the IRS described it this way:
“Specifically, the proposed regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment.”
Entertainment, as defined by the IRS, includes activities like entertaining at nightclubs, theaters, country clubs, golf and athletic clubs, and sporting events. The IRS also includes travel expenses from hunting and fishing trips as well as other types of vacation. This is a drastic difference from previous rules where 50 percent of such expenses could count as deductions.
Differences Between Food and Entertainment
Meals, however, still qualify as an expense, but there are some important differences from food expenses and entertainment.
Many times, an expense that would count as entertainment includes food. Think of a stadium food buffet at the aforementioned Neyland Stadium luxury box while hosting your beloved Knoxville accountant. If purchased separately, the chicken wings, hot dogs, popcorn and Diet Cokes qualify as a taxable expense as long as the prices reflect the normal amounts within the stadium. If the food is included in the cost of the luxury box, it is considered entertainment and cannot be counted as an expense.
The IRS detailed one catch for this food deduction, saying eligible meal expenses would only apply to a “current or potential business customer, client, consultant, or similar business contact.”
CPA Translation: The IRS will only allow you to write off meals with serious business associates or current/potential clients.
More Meal Deductions Allowed by the IRS
There are ways you can still count meal deductions in full as opposed to the 50 percent rule. These include, among others, food and drinks provided for a company party or picnic and food or beverages made available to the general public.
It’s important to monitor your company’s food expenses through your bookkeeping services and enlist your tax preparer to provide you with the exhaustive list of what you can and cannot count as a valid expense.
Tax and Accounting Services from Bookkeeping and Full Back Office Support to Yearly Tax Preparation and Planning
Navigating the tax code, as well as the IRS’s dos and don’ts, can be difficult, and as a business owner you have a lot on your plate already. Working with a trusted tax and accounting professional will alleviate some of your added burdens. At Lawhorn CPA Group, we are available to provide guidance to our clients year round – not just during tax season. With tax preparation and planning as well as our virtual financial office services, our team of tax professionals work with you to develop a tax strategy that works for your business and helps you thrive. For more information, contact one of our locations today.