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A Tax Accountant in Santa Rosa Explains How New Tax Laws Limit Your Entertainment Expense Deductions

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There are a lot of changes in the recent GOP tax bill, passed at the end of 2017, that can impact businesses.  In some upcoming blogs, we want to highlight aspects of the new tax law which will affect you – particularly those aspects which may not be getting the attention they should.

Today’s blog covers a change which will be highly disappointing for any businesses which are accustomed to entertaining potential clients in a bid for their business:  the tax bill eliminates the 50% deduction for entertainment expenses.

Understanding Changes to Entertainment Deductions with A Tax Accountant in Santa Rosa

The change here is clear-cut and unambiguous.  Going forward, until or unless the laws are changed again, you cannot deduct any expenses “for entertainment, amusement, or recreation” when wooing clients.  That means ball games, theater, box seats, parties, and so forth.  Every dollar of those expenses now comes out of your pocket.

There is only one exception.  You can still deduct 50% of the expense related to business meals, as long as those meals are “directly related” to business.  Which means, for the deduction to be legal, there must be business discussions during the meal and you must have a specific business goal for the meal.

Furthermore, these meals must be fully documented.  Information you will need to document and preserve include:

  • The date and time of the meal
  • The total cost
  • The business purpose
  • All participants names and occupations
  • Those participants’ business relationship with you

Does this include food and drink for your own employees?  Yes, but that’s not entirely a good thing.  Previously, you could deduct 100% of food and drink provided to your own employees.  Now, it’s covered under the 50% deduction along with all other business-related meals.

Oh, and as things stand, that employee food-and-drink deduction goes away entirely in 2026.  Although the law could potentially change by then.

We wish there were an upside to this one for businesses, but there simply isn’t.  Entertainment, food, and drink will now cost you more and require more documentation to receive a tax deduction.  That’s the bottom line, as unfortunate as it is.

Consult with A Tax Accountant in Santa Rosa With Thirty Years’ Experience

Montgomery Taylor has a long history as a tax accountant in Santa Rosa and wants to help you manage your wealth.  Contact us for a consultation.